CHAPTER ONE
- GENERAL INTRODUCTION
The 2005 consolidation exercise otherwise known as the recapitalization exercise embarked upon by the Central Bank of Nigeria (CBN), was meant to address the issue of inadequate share capital of banks in Nigeria by the introduction of N25Billion minimum share capital for all Banks in the country in order to make the banks stronger to be able to finance more businesses. The concept of recapitalization refers to the policy that compelled all commercial banks to raise their capital base from N2billion to N25billion by the Central Bank of Nigeria on or before 31st December, 20051. The exercise brought about huge resources at the disposal of financial institutions which in turn enabled them to make credit available to a large number of individuals and corporate entities with the intention of making huge profits.
The desire to make huge profits consequently pushed the financial institutions into fierce competition as a result of which some of them started giving out loans without collaterals in a bid to lure customers with the ultimate aim of making huge profits. This culminated in billions of naira loans to the capital market which at the end of the day, got caught up in the financial meltdown (a situation were some financial institutions or assets suddenly lose a large part of their value especially in the stock market crashes). The melt down led to the near collapse of many banks/other financial Institutions as a result of bad debts which arose from credit facilities granted by financial institutions without adequate collateral.
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