BANK RECAPITALIZATION THE IMPERATIVES, IMPLICATION, STRATEGY AND OPTIONS. A RESEARCH PROJECT MATERIAL ON BANKING AND FINANCE
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Financial sector is one of the dominant economic sectors in Nigeria. Banks are key player in any country’s financial sectors, they acts as intermediary that channels funds from the surplus unit to the deficit units in the country. They occupy a delegate position in the economic equation of the country such that their (good or bad) performance will invariably affect the country (Wilson 2006) study has shown that the banking system which is actually started in 1892 (Nwankwo 1980) has been largely volatile with the spate of banking failure experienced in most parts of the banking in the 1990s and in the early and mid-2000s. A strategy often utilize to strengthen banks in Nigeria and save them from financial distress is capital regulation by the central bank of Nigeria (CBN). A cursory look at the history of banking in Nigeria reveals that the CBN has found reasons to store up capital base of banks a number of times since 1980s from a modest value of 10million minimum Paid up capital, 1988 Nigeria commercial banks were required to maintain capital base not below N 50million, in 1991. Between 1991 to 2005 subsequent increase has been made ranging from N 500 million in 1997, 1 billion in 2001 and 2 billion in 2002 and since 2005 till date it is 25 billion (onalapo 2006). Recapitalization is used as a strategy to address insolvency of banks and forstall future possibilities of financial distress in the 1990’s crisis of banking sector, the Nigeria policy makers thought that most of the failed bank undercapitalized in some part because the minimum Capital requirement in force as at when they where set up was very low (brown bridge 1998). Recapitalization is therefore though not only to be able of resuscitating insolvent banks but also strengthen them especially through mergers. According to somoye (2008) the economic rationel for domestic consolidation is indisputable, it makes banking more cost efficient because larger banks can eliminate excess capacity in area like data processing marketing and personal or overlapping branch network.