BANK RECAPITALIZATION AND ITS EFFECT ON NIGERIAN BANKING INDUSTRIES.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
When a country’s banks experienced major financial setbacks, usually the stakeholders such as the public, depositors, markets and the regulator – Central Bank will have to respond. The setbacks are in terms of profitability, loans, deposits and continuous flow of liquidity to various sectors of the economy for the banks to maintain their role as engine of economic growth and development. The responses are that the public will tend to lose confidence not only in the affected banks but in the entire banking system. For example, depositors of affected banks may rush to withdraw their money for fear of loss and quest for safety. Other banks, that is, those that are not affected will equally experience the bank run/rush and the markets will make it very difficult for the banks to raise funds. The response by the regulatory authorities could take the form of either recapitalization or giving out temporary loan in the form of bail-out to enable the banks continue their normal operations without interruptions.
Financial problems in a banking system can cause great damages to a country if not timely and properly addressed, given its role as finance provider to other sectors of the economy and its ability to create liquidity. The financial problems of Nigerian banks started before the first banking law of 1952 (Banking Ordinance) and were traced to 1930 when the first bank failure was reported in the country. The major causes of the problems were linked to gross inadequate capital leading to technical insolvency, high operational loss due to low earnings and high operational costs, high incidence of non-performing loans associated with poor assets quality, weak management, declining margins and gross insider abuse (CBN and NDIC, 1995). As a result of these unprecedented problems, the banks’ performances have not been satisfactory. These have been adversely affecting the banks’ financial needs to customers, the public, the economy and internal growth in terms of physical assets, ability to grant long term facilities and putting in place modern infrastructure that could propel the sector to greater heights.
Leave a Reply
You must be logged in to post a comment.