COVER PAGE

AN APPRAISAL OF MARKETING STRATEGY

AT DIFFERENT STAGES OF PRODUCT
LIFE CYCLE
(A CASE STUDY OF UNI-LEVER NIGERIA PLC)

BY

AUTA JAMES
FPN/ SOI/2012/2013/NDMKT/1662

SUBMITTED TO

THE DEPARTMENT OF MARKETING

SCHOOL OF BUSINEE STUDIES
FEDERAL POLYTECHNIC NASARAWA
NASARAWA STATE

JULY, 2014.

TITLE PAGE

AN APPRAISAL OF MARKETING STRATEGY

AT DIFFERENT STAGES OF PRODUCT
LIFE CYCLE
(A CASE STUDY OF UNI-LEVER NIGERIA PLC)

BY

AUTA JAMES

FPN/ SOI/2012/2013/NDMKT/1662

SUBMITTED TO

THE DEPARTMENT OF MARKETING

SCHOOL OF BUSINEE STUDIES
FEDERAL POLYTECHNIC NASARAWA
NASARAWA STATE

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF

NATIONAL DIPLOMA
MARKETING

IN

JULY, 2014.

APPROVAL PAGE
This is to certify that this project work is an originated work
undertaken by Auta Michael Daniel. This project work has
been fully supervised and approved to be of required standard
in the department of marketing Federal Polytechnic Nasarawa.

____________________
___________________
MONICA EZENWUGO
(Supervisor)

DATE

__________________
___________________
MALLAM MUHAMMED YARO
(Head of Department)

DATE

__________________
__________________
MR.M.O ODEH
(External examiner)

DATE

DECLARATION
I declare that the work done in this project has been written
by me based on research findings, materials used from all
other source have been fully referred to and acknowledge.
____________________
AUTA MICHAEL DANIEL

__________________
DATE

CERTIFICATION

I hereby certify that this research project has been read

through and approved as having fulfilled the requirement for a
test presented for the award of National Diploma in marketing,
Federal Polytechnic Nasarawa.
_______________________
_________________
MONICA EZENWUGO
(Supervisor)

DATE

LETTER OF TRANSMITTAL
Department of Marketing
School

of

Business

Studies,
Federal

Polytechnic

Nasarawa
P.O Box 001,
Nasarawa State.
The Head of Department
Department of Marketing
Federal Polytechnic Nasarawa
Dear Sir,
SUBMISSION OF NATIONAL DIPLOMA WORK
In compliance with the policy of the department and the
established authority of the Federal Polytechnic Nasarawa that
students should at the end of their course undertake a project
work relevant to their course of study.
I hereby submit with due honour and respect a detailed report
of the project work titled An appraisal of the Marketing
Strategies at different stages of a product life cycle. ( A Case
Study of Unilever Nigeria PLC).
Thank you
8

Yours Faithfully,

AUTA

MICHAEL

DANIEL

DEDICATION
I dedicate this project work to Almighty God. The giver of
knowledge and understanding. And to my loving parents, (my
Sweet Mummy and Dad) Mr and Mrs. Daniel Auta, who never
ceased to remind me of what life is all about. They have been
very helpful in my up-bringing. I appreciate your efforts in
trying to make me a good boy out of me and I want you to
know that I will on my part try as much as possible not to let
you down. I shall remain grateful.

ACKNOWLEDGEMENT
I wish to express my sincere gratitude to Almighty God for
giving me the course to cope with the trouble in search of
knowledge. I am grateful to my Project Supervisor, Mrs Monica
Ezenwugo, to have carefully gone through this work for its
improvement before the final typing.
My thanks goes out to my Head of Department (HOD), Mal.
Muhammed Yero and to my lecturers, Mr. Rowland Ezenwugo,
Mr. Ja-faru Itopa, mr. Iliya bawa, Mr. Ibrahim Abubakar, Mrs.
Monica Ezenwugo, Mr. Victor Ogunbiyi, mr. Kufrey Inyang and
Mr. Elisha Peter. May God reward them abundantly for seeing
me through my programme.
My profound gratitude goes to my parentgs, Mr and Mrs.
Daniel Auta, My sisters, Florence, Godiya Roseline and Rejoice
Auta, My cousines, Mark, Gabriel, Mariam, Shekwoshawyer
and Esther Auta, my uncles, Andrew, Jacob and Sunday
Yemison.
10

My thanks also goes to my friends, Benson Njoku, Femi

Johnson, Ibrahim Ezekiel, Funsho Simeon, Vincent Ezima and
Grace Vembe, Richard Oti. I love you all.

11

ABSTRACT
This research project assesses the impact of strategic marketing
on the life cycle of a product. Essentially, the research work is
aimed at determining the stage of the product life cycle that call
for work and effective strategic marketing and to determine the
degree of its impact on the companys sales value and
profitability. In order to establish a theoretical framework for
conducting the study, some relevant literatures were reviewed.
The researcher also employed both secondary and primary
sources of data collection techniques. The data was collected
through administrated questionnaire presented in tables and
analyzed in percentages, Chi-square statistical technique was
used in testing the hypothesis. The result of the two hypothesis
reveals that strategic marketing is more effective and result
oriented at the maturity stage of the product life cycle compared
to other stages and that there is a significant relationship
between
strategic
marketing
and
product
sales
volume/profitability.

12

TABLE OF CONTENTS
Title Page
Approval Page
Declaration
Certification
Letter of transmittal
Dedication
Acknolwedgement
Abstract
Table of Contents
CHAPTER ONE: INTRODUCTION
1.0

Introduction

1.1

Historical Background of the Case Study

1.2

Statement of the Problem

1.3

Objective of the study

1.4

Statement of the Hypothesis

13

1.5

Significance of the Study

1.6

Scope of the Study

1.7

Limitation of the Study

1.8

Definition of terms

CHAPTER TWO: LITERATURE REVIEW

2.0

INTRODUCTION

2.1

Concept of Study

2.2

Meaning of Marketing

2.3

Marketing Functions

2.4

Definition of Product

2.5

product Life Cycle Strategy

2.6

The product Life Cycle

References

CHAPTER THREE: RESEARCH METHODOLOGY

3.0

Introduction

3.1

Sources of Data
14

3.2

Research Instrument

3.3

Population

3.4

Sample Size

3.5

Questionnaire Design

3.6

Questionnaire Distribution and Collection

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.0

Introduction

4.1

Data Presentation and Analysis

4.2

Test of Hypothesis

4.3

Research Findings

CHAPTER FIVE
SUMMARY, CONCLUSIONAND RECOMMENDATIONS
5.0

Summary

5.1

Conclusion

5.2

Recommendations
Bibliography
Appendices

15

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Banking Industry is the most vibrant sector in the
Nigeria economy; the shares of banks are the most
trade in the Nigeria stock exchange sources. Historically
the industry has developed in four stages.

Firstly, this stage can best be described as the

unguided, lazes fairs phase (1930-1959) during which
several poorly capitalized and unsupervised indigenous
banks failed before their Tenth Anniversary.

Secondly, its was the control regime (1960 - 1985)

during which the Central Bank of Nigeria ensured that
only fit and proper person were granted banking
license subject to a minimum paid up capital.

Thirdly, the post-SAP, de-control regime (1986-2004)

during which the neo-liberal philosophy of free entry

16

was

over

stretched

and

banking

licenses

were

dispensed with the political authorities on the basis of

patronage.
The emerging further stage is the are of consolidation
(2005-?) with your emphasis on recapitalization and
proactive regulation based on prudential principles and
work based supervision. The current reform framework
is anchored in two critical pillars.
a. To provide effective protection against systematic
financial crisis, in the interest of depositions and
b. To fast track the growth and development of the
National economy, Encourage competition locally and
internationally in conformity with the new trend of
Globalization.
Recapitalization transcends mere by reducing the size
of the banking industry. It is expected to enhance
synergy, improve efficiency, induce investors focus and
trigger productivity and welfare gains.
In general terms recapitalization of banking firms
involves either a combination of existing banks among

17

the leading banks or existing from the industry of weak

banks.

The

recapitalization

programme

recently

introduced and seen implemented in Nigeria takes the

form of Mergers and Acquisition.
According to the Central Bank of Nigeria (CBN) the form
became

necessary

because

of

the

observed

fundamental problems in the industry, which include

among others.
Significant asset quality problems.
Under capitalization of a number of industry players
Significant corporate governance issues
Inadequate risk management practices
Neglect of small and medium scale enterprise by the
system.
In the main, the policy aims at developing a more
resilient, competitive and dynamic banking system that
supports and intimate positively to the growth of the
economy with care of strong and forward looking
banking institutions that are technology driven and
ready

to

face

the

challenges

18

of

liberation

and

globalization. The reform essentially entails the build

up0 of capital, size and business scale of the banking
institutions at the end of which smaller number of
banks but much stronger institutions will emerge.

1.2 STATEMENTS OF THE PROBLEM

It was glaring evident that Nigerian Banking Industry
was in desperate need for reform. After the 1986 SAPinduced boom that brought about Banking license
liberalization and the deregulation of interest rates, the
distress syndrome slowly and surely crept into the
industry as a result of which many banks were
liquidated, either singly or in groups. This seems to
have not provided the final solution as the Central
bank of Nigeria (CBN) had identified about twenty five
banks as having liquidity problem service. Hear the
CBN Governor, the latest assessment shows that while
the overall health of the Nigerian banking system could
be described as generally satisfactory, the state of
some bank is less cheering. Specifically, as at end-

19

March 2004, the CBNs ratings of all the banks,

classified 62 as sound/satisfactory, 14 as marginal and
11 as unsound, while 2 of the banks did not render any
returns during the period service.
Curiously enough,. Neither the CBN Governor nor the
Deputy Governor cited poor supervision by regulatory
bodies, CBN and NDIC in their presentations as one of
the reasons that created the distress syndrome in the
banking industry, which eventually saw the demise of
many banks due to poor supervision which created
room

for

poor

governance,

insider

abuse,

non-

performing assets, and poor internal control, among

others; which are the main reasons cited for the poor
position of the banks, the Central Bank of Nigerian
introduced measures that will reduce the exposure and
enhance the stability of the nations financial system. A
defensive measures that will strengthen the existing
banks and put the news ones on a good start up is
needed, hence the introduction of a new capital base of
N25 million.

20

1.3 OBJECTIVES OF THE STUDY

The main objectives of the study is to examine the
impact

of

recapitalization

in

the

achievement

of

business in Nigeria Banking Industry.

Thus, in order to achieve the above objective, the
following specific objectives are being propounded they
are:
1.

Determine the degree of integration and address

integration issues, especially management and culture.

2.

Establish an acquisition strategy that focuses in the

sources of value, including a strategic fit, an operational
fit, and a chemistry fit.

3.

highlighted possible challenges posed by the policy on

bank recapitalization.

1.4 RESEARCH QUESTIONS

21

In order to achieve the objective of this research study,

specific

research

questions,

which

addresses

the

problem of study are posed as follows:

1.

Why is the recapitalization of the banking industry

necessary?
2.

To what extent would the recapitalization of the banking

industry affect the Nigeria industry?

1.5 RESEARCH HYPOTHESIS

To provide answer to the research question the
following hypothesis will be tested.
H0: recapitalization does ehances effective supervision
of 25 banks instead of 89.
Hi:

Recapitalization

does

not

ehance

effective

supervision of 25 banks instead of 89.

H0: Recapitalization has led to increase asset base of
banks.
Hi: Recapitalization has not led to increase asset base
of banks.
1.6 SIGNIFICANCE OF THE STUDY

22

A study of this kind is expected to make theoretical and

practical contribution in the banking industry. This study
will be contribute and provide insight in the importance
of banking industry in nation building. Also, this study
provides a better basis from which to grasp new
opportunities in the Nigeria banking environment.
Recapitalization has reduced the ratio of nonperforming
loans of banks.
The finding and suggestions of this study will go a long
way to boost the moral of bankers in Nigeria.

1.7 SCOPE OF THE STUDY

The study is based on recapitalization of commercial
banks which was introduced on 31st December 2005 to
N25 million.
This process of recapitalization, confirmed that the
proposed recapitalization, in order to strengthen the
banking system throughout the whole Nigeria. The
process

will

allow

the

banking

sector

international standards even further, and

23

to

met

The consolidation program has fundamentally changed

the nature of competition in the banking industry in
Nigeria. Through the new minimum capital requirement,
the

number

of

banks

in

the

country

has

been

successfully reduced form Eighty Nine (89) to twenty

two (22). The policy has also effective raised entry
barriers for those wishing to start banking business
(Osubo, 2006, S).

1.8 LIMITATION OF THE STUDY

Undertaken a research study is a serious business,
which requires a commitment of time, money and
energy both intellectual and physical. Balancing the
research study with Academic and giving to work is a
great task that takes intellectual stamina to the limit,
also the level of accuracy in this study is proportional to
the availability of information that the respondents are
willing to give.
There is thus, in certainly that information given is
without bias.

24

1.9 DEFINITION OF TERMS

RECAPITALIZATION: Recapitalization refers to mergers
and acquisitions of banks by banks.
CONVERGENCE: Convergence refers to the mixing of
banking and other types of financial services like
securities and insurance through acquisition or other
means.
ACQUISITION: Acquisition involves a process of buying
major shareholding of an institution that has become
insolvent.
MERGER:

Merger

is

the

amalgamation

of

the

undertaking of two or more companies whereby either

one

of

the

merging

company

absent

the

other

companies or all the merging company combine to form

a new companies and in other instances the rights and
obligations of all the merging companies pass to the
successor

company

and

simultaneously dissolved.

25

other

companies

are

CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
This chapter critically evaluates and reviews past
relevant studies on recapitalization characteristics and
the performance of banking industry works of renowned
author, writers and experts are extensively reviewed
with a view to identifying areas of convergence and
divergence in such work.
Perhaps there is need to underscore the distinction
between growth and development in order to
properly bring to the fore the critical role that bank can
play in a national economy.
Typically growth entails increasing national and per
capital real income overtime, whereas development
encompasses structural change, technological advance
and the narrowing of inter-sectoral and regional gap
(Kuznets, 1965).
Generally,

sustaining

occurring

does

not

growth

where

necessarily

26

it

is

already

require

further

deepening of the banking system, however to launch

and sustain development in an underdeveloped country
requires well capitalized banks that can boast of
premier league professionals.
Conceptually, growth without development is possible
in the short run, but development without growth is
harder to contemplate.

2.1 THE CONCEPT OF CAPITAL BASE

The recent call for recapitalization in the banking
industry had raised much argument among the bank
regulators promoters and depositors as if shorting up of
banks capital base is a new phenomenon in Nigeria.
Histrionically, the failure of pioneer banks in the 1930s
and 1940s brought about the enactment of banking
ordinance

of

1952.

banking

ordinance

of

1952

prescribed an operating license and emphasized on

minimum equity capital for all banks (Onoh, 2002: 321).
The

ordinance

provided

27

for

licensing

procedures

standards and conducts for banking businesses. Other

ordinance that followed includes:

CENTRAL BANK ACT, 1958

The Central Bank Act 1958 (as amended) and the
Banking Decree 1969 (as amended) constitute the legal
framework
regulates

within
banks.

which
The

the

wide

CNB

operates

range

of

and

economic

liberalization and deregulation measures following the

adoption,

in

1986,

of

structural

Adjustment

programme (SAP) resulted in the emergence of more

banks and other financial intermediaries.
The Banks and other financial institution (BOFI) Decrees
254 and 25 of 1991, which repealed the Banking
Decree 1969 and all its amendments, were therefore,
enacted to strengthened and extend the powers of CBN
to cover the new institutions in order to enhance the
effectiveness

of

monetary

policy,

regulation

and

supervision of banks as well as non banking financial

institutions.

28

Unfortunately in 1997, the Federal Government of

Nigeria enacted the CBN (Amendment Decree No. 3 and
BOFI (Amended) Decree No. 4 in 1997 to remove
completely the limited autonomy which the Bank
enjoyed since 1991.
THE 1997 AMENDMENTS
The 1997 amendments brought the CBN back under the
supervision of the Ministry of finance. The decree made
CBN directly responsible to the Minister of finance with
respect to the supervision and control of banks and
other

financial

institutions,

while

extending

the

supervisory role of the bank to other specialized Banks

and

financial

institutions.

The amendment

placed

enormous powers on the Ministry of finance while

leaving

the

CBN

with

subjugated

role

in

the

monitoring of the financial institutions with little room

for the Bank to exercise discretionary powers.
THE 1998 AMENDMENTS
The CBN (Amendment) Decree No. 37 of 1998 which
replaced the CBN (Amended) Decree No. 3 of 1997. the

29

Decree provided a measure of operational autonomy for

the CBN to carry out its traditional functions and
enhances its versatility.
THE BOFI (AMENDMENT) DECREE, 1998
Furthermore, the regulatory powers of the CBN were
strengthened

by

the

Banks

and

other

financial

institutions (Amendment) Decree No. 38 of 1998 which

repealed BOFI (Amendment) Decree No. 4 of 1997.
through the amendments, the CBN may vary or revoke
any condition subject to which a license was granted or
may impose fresh or additional condition to the
granting of a license to transact banking business in the
country.
By the Decree, the CBNs power on banks, specifically
those relating to withdrawal of licenses of distressed
banks and appointment of liquidators of these banks,
including the NDIC was restored.
THE 1999 AMENDMENTS
The BOFI (Amendment) Decree No. 40 of 1999 makes
the provisions relating to failing banks applicable to

30

other financial institution. It also empowers of a failing

bank or other financial institution.
Raising of bank capital has therefore become the
hallmark response policy of the Nigerian Monetary
authorities.
Capitalization is an important component of reforms in
the banking industry, owing to the fact that a bank with
a strong capital base the ability to absorb losses arising
from

non-performing

capitalization

liabilities

requirement

is

(NPL).

Attaining

achieved

through

consolidation, convergences as well as the capital

market. Thus banking reforms are primarily driven by
the need to achieve the objectives of consolidation,
competition and convergence (Dean Herald, 2004) in
the financial architecture.
Following the introduction of structural adjustment
programme (SAP) in 1986, which characterized by
financial deregulation, the whole financial system
experienced

radical

structural

changes.

Also,

considering the vital and critical role banks were

31

expected to play in the implementation of SAP, banking

licenses were liberalized.
This liberalization led to the rapid rise in the number of
banks

in

Nigeria

in

that

era.

However,

the

re-

introduction of the deregulation of the deregulation

policy in 1994 marked the beginning of the second era
of massive bank failure in Nigeria.

2.2 TH POSITION OF THE BANKING SECTOR BEFORE

RECAPITALIZATION
In His address on 6th July, 2004, the Central Bank
Governor said The Nigerian banking system today is
fragile and marginal. Our vision is a banking system
that is part of the global change, and which is strong,
competitive and reliable. It is a banking system which
depositors can trust, and investors can rely upon.
Evolving

such

banking

system

is

collective

responsibility of all agents in the Nigerian economy He

gave reasons such as persistent illiquidity, weak
corporate

governance,

poor

32

asset

quality,

insider

abuses, weak capital base, unprofitable operations, and

over-dependency on public sector funds, among others,
that necessitated the banking sector reform.
In the same paper, the CBN Governor said one of the
recent developments in the banking system, which is of
great concern to the monetary authorities is the
significant dependence of many Nigerian banks on
government

deposits,

with

the

three

tiers

of

government and parastatals accounting for over 20

percent of total deposit liabilities of deposit money
banks. Although the distribution among banks is not
uniform, there are some banks whose dependency
ratios are in excess of 50 percent. The implications are
that the resources base of such banks is weak and
volatile, rendering their operations highly Vulnerable to
swings

in

government

revenue,

arising

from

the

uncertainties of the international oil market.

Soludo went on the justify the banking reform by
painting the incomparable picture o the banking
industry stating that in recent times, many banks

33

appear

to

have

intermediation

role

abandoned
of

the8ir

mobilizing

essential

savings

and

inculcating banking habit at the house hold and micro

enterprise levels.
The apathy micro towards small savers, particularly at
the grass root level, has not only compounded the
problems of low domestic savings and high bank
lending rates in the country, it has also reduced access
to relatively cheap and stable funds that could provide
a reliable source of credit to the productive sectors at
affordable rates of interest. He went further to say that
the current structure of the banking system has
promoted tendencies towards a rather sticky behaviour
of deposit rates, particularly at the retail level, such
that while banks lending remain high and positive in
real terms, most deposit rates, especially those on
savings are low and negative. In addition, savings
mobilization

at

the

grass

root

level

has

been

discouraged by the unrealistic requirements, by many

banks for opening accounts with them.

34

It was glaringly evident that the Nigerian banking

industry was in desperate need for reform. After the
1986 SAP-induced boom that brought about banking
license liberalization and the deregulation of interest
rates, the distress syndrome slowly and surely crept
into the industry as a result of which many banks were
liquidated, either singly or in groups. This did not
provide the final solution as the CBN had identified
about twenty five (25) banks as having liquidity
problem.

Hear

the

CBN

Governors,

The

latest

assessment shows that while the overall health of the

Nigerian

banking

system

could

be

described

as

cheering. Specifically, as at end-March, 2004, the CBNs

rating

of

all

the

bank,

classified

62

as

sound/satisfactory, 14 as marginal and 11 as unsound,

while 2 of the banks did not render any returns during
the period.
Curiously enough, neither the CBN Governor nor the
Deputy

Governor

regulatory

bodies

cited
of

poor
CBN

35

supervision
and

NDIC

by
in

the
their

presentations as one of the reasons that created the

distress syndrome in the banking industry, which
eventually saw the demise of many banks. Poor
supervision creates room for poor governance, insider
abuses, non performing assets, and poor internal
control, among others; which are the main reasons
cited for the poor position of the banks.
Sources: Bank consolidation and N25bn Recapitalization
-

Another perspective by Bellow Abdullahi

2.3 THE

VISION

OF

RECAPITALIZATION

ARE

AS

FOLLOWS
There are indications that banks are now favourably
disposed

to consolidation (Merger and Acquisition)

after considering various options available to tem on

account

of

the

introduction

of

the

N25

billion

recapitalization, which will also send most of the banks

Managing Directors and their boards to meetings and
marshalling of game plans from the preliminary reports
form the negotiation table, banks could have several

36

options to explore. In an attempt for banks to meet up

with the new requirement, some banks are exploring
the option of inviting foreign investor to buy into Banks.
Other are looking at the possibility of getting investor to
shore up their capital, and some are looking at the
capital market option, wile others are considering
mergers and acquisition.
This process of recapitalization and restructuring of
Nigeria (commercial) banks has been gathering pace
since

the

decision

was

made

by

CBN

on

the

recapitalization of Nigeria Banks from N2 billion Naira

by December, 31st 2005. the proposed recapitalization
as confirmed by the CBN governor, Professor Charles
Soludo, is a subtle way to compel Nigeria banking
system

through

consolidation

(Mergers

and

Acquisition). The process would further enable the

banking sector to meet up with international standards.
Apart the pronunciation by professor Charles Soludo,
the recent change in banking has necessitated the need

37

for

different

banks

to

engage

in

corporate

consolidation.
The Oxford Advance Learners English Dictionary Fourth
Edition (1999), defines consolidation as a positive of
power or success stronger so that it is more likely to
continue and merger as the combination of commercial
companies into one. Acquisition on the other hand was
defined by another source as a company taking a
controlling ownership interest in another firm, could be
legal subsidiary of another firm or selected asset of
another firm.
It may involve the purchases of another firm asset or
stock while the acquired from continues to exist as a
legally owned subsidiary. For the purpose of this study,
mergers and acquisition will be deemed to have
occurred when two or more organization joins together
all or part of their operations. Globally, such business
combinations have involved various sizes of companies
as well as assets and have cut across economic sectors.
While many business combinations have been well

38

received by parties involved, other have done so with

stiff resistance often resulting in long battles to prevent
the combinations.
With the latest CBN regulations and the systematic
withdrawal of Federal funds from the banks, are on the
drink of extinction. As a result of this a lot of banks are
now either going or trying to positi0on themselves as
banks of choice for possible merger or acquisition by
other banks. This new development would also impact
on employment, as most top management would be
affected and other young staff would be thrown into the
labour market in the bid to have the required number of
directors by the regulatory authorities and on the
economy at large.
In Nigeria today, a number of banks wanting to merge
many run into difficulties, because most Nigeria banks
are not quoted on the stock exchange and the assets of
some are really bad. The effect of the merger is that
merging banks in the country, under the current
dispensation may lose their licenses and be issued new

39

ones to reflect the new consolidated outfit. As we go on

in the subsequent chapters, further critical looks shall
be taken on the effect that this development is likely to
or will have on the Nigeria banking industry and the
economy at large.

2.4 BENEFITS OF RECAPITALIZATION

This program has fundamentally changed the nature of
competition, in the banking industry, in Nigeria, through
the new minimum capital requirement, the number of
banks in the country has been successfully reduced
form Eighty-nine to twenty two (22). The policy has also
effectively raised entry barriers for those wishing to
start banking business (Osubo, 200. 5)
There

are

many

benefits

attached

to

the

recapitalization of the Nigerian Banking sector, and the

Nigeria banks stand to gain a lot from them. Some of
the benefits are according to Eseoghene Igberaharha in
his publication posted on Google on Feb. 10, 2010
include.

40

Emergence of 25 banks through consolidation (ompare

to 89 banks before consolidation). Successful banks
accounted for about 93.5% of aggregate deposit
liabilities.

More effective supervision focus on fewer (22) banks

rather than 89 mostly sick banks. No more wholly
regionally/Ethnically based banks.

Strong capital is a basic indication of solvency, and it

will take awhile along with careless risk for any of the
newly capitalized banks to walk its way into solvency.

Recapitalization provides a vehicle for taking out the

weak banks in the system in an orderly manner.

Recapitalization

will

improve

profitability

and

operational efficiency of banks.

The expansion of the shareholding base of Nigeria

banks, thus eliminating the phenomenon of family
banks

and

the

tendency

governance.

41

for

poor

corporate

The Nigeria economy will be stronger and better

capitalized to finance the long term development
projects in different spheres of the economy and
businesses.

Banks will also invest infrastructure development, good

business

enterprises

and

moreover,

support

entrepreneurship.

Banks will invest heavily in training and development of

manpower (Osubo, 2005).

Enhanced liquidity and capitalization of stock market.

Aggregate

capitalization

of

banks

as

shares

capitalization rose form 24% to 38%.

Other benefits according to Victor Ezeaku in his
publication on banking in Nigeria: Recapitalization of
the banking sector are:
EMPLOYMENT
The reform will have a positive impact on the labour
force in the long term. The Banking industry is a
significant employer of labour, employing over 47,000
of he skilled workforce in Nigeria. A potential fall-out of
42

the proposed industry transformation will possibly be

staff redundancy in a bid by banks to maximize
efficiency. However, the number of the economically
active population of he country, which is estimated to
be about 71 million individuals, makes the overall
impact of potential lay-offs minimal.
Whilst this may be disruptive in the short-term, the
benefits to the economy over the long-term are more
far-reaching.
A

stronger

banking

industry

would

be

able

to

adequately support the real sector in the economy, in

turn rejuvenating real sector and ultimately creating
more jobs within the economy in the long term.
The Central Bank of Nigeria (CBN) and the Nigeria
Deposit insurance corporation (NDIC) report that, of the
115 banks in operation in 1997, 47 were in varying
states of distress with an average ratio of nonperforming

assets

of

around

82

percent.

The

restructuring of distressed banks start with their being

put under joint control through acquisition in trust

43

by the NDIC and the CBN for eventual sale to private

operators. Six mergers between 196and 1998 resulted
in 88 net job losses out of a total workforce of 1,860.
Without the mergers, many of the banks would have
been closed by regulators with the loss of all the jobs
involved. Although the worst of the crisis may be over,
only 30 of the 82 remaining banks are serious
operators.

Recovery

does

nit

mean

an

end

to

restructuring as the industry is expected to shrink in

both the number of institutions and active branches,
although the letter already declined from nearly 2,500
to 2,200 between 1997 and 1999. employment in the
sector dropped from 78,514 workers in 1990-91 to
54,292 in 1999 2000 though this can be attributed to
bankruptcies and closure and not wholly to Mergers and
Acquisitions.
SHARE HOLDERS VALUE
Currently, the average Return on Invested capital
(ROIC) in the Nigeria banking industry is 38%. To
maintain this average return on invested capital, banks

44

will need to generate at least N9.5bn in profit before

taxation. To sustain such performance, banks are forced
to be creative in utilizing their especially the consumer
market should be cultivated. Bank will also need to
expand their operations beyond the Nigerian market to
participate in the regional and global financial market
place.
At its most basic, creating shareholder value means
that the market favours firms that increase the
productive use of their assets by increasing turnover
ratios, margins and profitability. Increasing sales growth
adds shareholder value as long as reinvestment earns
returns

that

exceed

the

firms

cost

of

capital.

Conversely, firms without such opportunity destiny

shareholder value by reinvesting and should return the
money to shareholders through dividend increases or
share

buy-banks.

These

are

largely

motherhood

statements in finance, but are often reflected either in

managerial policies or corporate culture. Shareholder
value maximization is specified by only 20 percent of

45

executives polled in the survey as an objective of

Merger and Acquisition.
OPERATING SYNERGY
Consolidation of Nigerian banks will result to merging of
banks which will give rise to a large bank, which will use
its operation synergies to generate higher net income.
The stronger banks at the beginning of consolidation
had assured most of the marginal banks that whatever
shareholders funds they had were not important but the
synergy they would bring to bear in the operation of the
bigger entity to emerge form consolidation effort ad
crucial. Such factors include the presence in areas
where the smaller banks were and the stronger banks
had no presence were being touted.
OWNERSHIP
The

consolidation

of

the

banking

sector

will

considerably modify the system of ownership structure

of Nigerian banks, making it more widespread and
better diversified.

46

The emerging shareholder of banking institutions are

likely to demand higher level of job ethics, transparency
and professionalism in the modes operandi of banking
business, which will further promote better corporate
governance

and

will

consequently

guarantee

accountability in the Nigerian banking system.

2.5 THE CONCEPT OF RECAPITALIZATION

Bank recapitalization occurs when the entity acquires or
merges with another similar entity. The collective
recourses of the new entity as well as collective
liabilities are reorganized in order to place the new
bank

in

the

best

financial

situation

possible.

Recapitalization of banks can also take place in an

effort to resist a takeover attempt, or avoid a potential
failure or severe cutback in operation. The process of
recapitalization has been argued to enhance bank
efficiency through cost reduction revenue in the long
run. It also reduces industrys risk by elimination
weaker banks and acquiring the smaller ones by bigger

47

and stronger banks as well as creates opportunities for

greater diversification and financial intermediation.
The pattern of banking system consolidation could be
view in two different perspectives, namely; marketdriven and government led consolidation. The marketdriven consolidation which is more pronounced in the
developed countries sees consolidation as a way of
broadening competitiveness with added comparative
advantage in the global context and eliminating excess
capacity more efficiently than bankruptcy or other
means of exit.
On the other hand, government-led consolidation stems
from the need to resolve problem of financial distress in
order to avoid systematic crises as well as to restrict
inefficient banks (Ajayi, 2005:2). One of the general
effect of consolidation is to the reduction in the number
of players, moving the industry more toward an
oligopolistic

market

(Adedipe,

2007:37).

major

challenge of bank consolidation is how to foster

competition with fewer mega banks.

48

Certainly, fewer cannot be more competitive. There is

however, the other side to the argument, which
considers the number and spread of bank branches.
The fewer banks are likely to be pressured to expand
further,

seeking

business

opportunities

through

aggressive branding to hitherto unexplored territories

(Moon, 1998).
There is ample evidence that this is the direction that
the emerging banks in Nigeria are likely to follow, going
by the indications in their capital raising information
memorandum.

International

evidence

in

bank

recapitalization also confirms this except that it is more

in the context of cross boarder acquisitions (Hughes,
Lang, Master and Moon 1998).
One of the supposed benefits of recapitalization (Bigger
Banks)

is

indeed

and

efficiency

challenge.

The

argument has been that bigger banks might not

necessarily be filter or more efficient, since they no
incentive to improve efficiency within the limited
competitive field. Observers of Nigerian banking have

49

noted that the big banks (Perhaps because of the

increase in the number of customers) have slipped back
to their erstwhile habits before the advent of the new
generation banks. Available, empirical evidences from
Hughes et al (1998).
Another major challenge of recapitalization is capacity
building for risk management for both the regulators
and operators. Both constituencies of the bank system
need to enhance their risk management skills and
indeed acquire new ones, covering the three plan of risk
recognition,

evaluation

and

monitoring

(Adedipe,

2005:41).
SECURITY
Infact security of banks has emerged as the most
unintended problem of recapitalization. No time in
recent banking history have banks become targets of
armed robbery raids. Since the end of consolidation,
virtually no week has passed without a report of a
major raid in some parts of the country.

50

With few number of banks, banking activities would be

more concentrated, which by extension would entail
more availability of cash in banks vaults and halls.
Such robberies have resulted in both human and
financial losses which the banks are to blame so long as
they do not heed the call by CBN and the police to take
security issues more seriously and make adequate
investments accordingly.
POOR SERVICES
Perhaps this is a major area of disappointment for most
supporters

of

the

policy,

who

believed

that

recapitalization would improve the quality of banking

services.
To a large extent the quality of banking services has not
really improved, although great promises and effort
have been made to change the situation. For one, the
turn around time of a simple banking transaction, such
as deposit of withdrawal of cash has not really changed;
which means banks customers still spend the same

51

average time in the banking has as before inspite of the

massive investment in technology.
Even the wide spread deployment of Automated Teller
Machines (ATMs) by banks for easy withdrawal has not
entirely been successful as there are usually long
queues at the machines locations resulting form its slow
access process which makes delay in the banking hall a
childs play. There is also the problem of breakdown or
malfunction of the ATM, which have stretched the
patience of users. Banks are also yet to find a way
around the rigorous documentation process involved in
simple transactions to reduce the turn around time. It is
also hoped that with the massive expansion in branch
networks, the present pressure on a few available
outlets will reduce.
LOW RETURNS ON INVESTMENT
Generally, the banking sector has not been known for
remarkable returns on investment. The situation too
has not change inspite of huge resources at their
disposal. Since 2006, only two banks have declared

52

dividends of N1 per share, which was Ostensible

motivated by their desire to go to the capital market to
raise funds. Most shareholders of banks have been
largely disappointed by the performance of banks in
rewarding investors given the huge profits recorded by
them. The reasons is because banking at its present
stage of development is still capital intensive as they
grapple with the onerous task of expanding branch
networks,

investing

in

security

and

upgrading

technology infrastructure. So most banks rely on their

reserves to execute these projects, which directly deny
shareholders distributable profits as dividends. And the
situation is not likely to change unless bank embark on
massive mergers and acquisition to increase their
branches and to reduce their present urgency to
expand and increase operating cost through economy
of scale.
RESOLVING THE FAILED BANKS CASE
This

perhaps

the

greatest

sore

point

of

the

consolidation policy that leaves a sour taste in the

53

mouth. The liquidating of 14 banks at the end of the

2005 December deadline has created a complex and
complicated situation for the CBN and the industry.
Already the case is in court and nobody knows where
the pendulum will swing. As the case drags on, the N96
billion trapped in these banks remains beyond the
reach of their owners. According to the NDIC, N144
billion has been trapped in failed banks between 1994
and 2006.
Recent revelations on the implementation of the policy
have

pointed

to

major

irregularities

and

even

improprieties as evident in the spring, Wema and first

inland banks cases.
These banks were allege to have failed the N25 billion
mark at the end of 2005, yet they got the certification
of CBN. Besides, some other banks were allege to have
used depositors funds to shore up their capital base
while others lent directors money to invest. Spring Bank
produced the first test case for CBN, which failed to
respond appropriately because of perceived complicity.

54

2.7 IMPACT

OF

RECAPITALIZATION

ON

BANKING

INDUSTRY AND REAL SECTOR

The likely impact/effect of bank recapitalization on both
the banking and real sectors are reviewed under the
following heading:1.

Capital

2.

Local Competition

3.

Economics of scale and scope

CAPITAL
Impact on the Banking industry included:-

The banking industry would be better capitalized

Recapitalization will ensure the presence of fewer

banks within the system which will lead to a virtual
elimination of weak banks that would be absorbed
into stronger banking groups.

Better capitalization through consolidation would

increase banks ability to make required investments
in delivery channels and human resources.

55

Increase capital would lead to lower returns on

investment (ROI), at least in the short run.
Effect on the real sector include;

There is the possibility that large pools of fun held by

banks would achieve large volume transaction and
hence, the neglect of small borrowers/businesses.

LOCAL COMPETITION
Impact of the Banking Industry
-

Industry competition would become more balanced

and professional.

Previously inefficient big banks would need to

increase their efficiency levels to defend market.

Banking services would expand into under banked

regions.
Effect on the real sector

Banking

services

would

efficiency and cost

56

improve

in

terms

of

Banking habit would be expected to improve as a

result of increased confidence in the banking system.
ECONOMIES OF SCALE AND SCOPE
Impact on the Banking Industry

Better cost efficiency would arise from merger

synergies

Better access to a cross sector of customer.

2.8 THE NEED TO RESTRUCTURE

The announcement by the Central Bank of Nigeria
Governor in July 2004 of the Banks restructuring stated
that the first phase would involve strengthening and
consolidating the banking system safety of depositors
money, play active ad development roles in the
economy.
The thrust of this restructing is to ensure sound banking
practice to support the economy. The above scenario
reveals the urgent need for restructuring to evolve a

57

robust banking system that can meet the deal growth

and development needs of the economy. Business
opportunities are emerging in telecommunications,
manufacturing, construction, power. Oil and gas. The
restructuring is expected to evolve a stronger financial
system

and

internationally

connected

competitive

banks that would;

-

Participate

in

placement

of

Nigerias

external

reserves
-

Mobilize

international

capital

for

Nigerians

development
-

Pool resources from consolidation, which if properly

manage would result in synergy and cost reduction.
The long term implication of the restructuring are;

Increase in the size of loanable funds, increase in

equity and sourcing of funds from small savers and
the informal sector will increase the size of loanable
funds to the real sector at competitive interest rates.

Pension funds reforms will inject huge funds into the

economy

58

Growth in the real sector will evidence growth in the

banking sector and ultimately result in growth in the
economy.

Employment generation from growth in the real

sector

Improvement in consumer purchasing power and

consequently in effective demand.
Sources: CBN Report 2004, 2006 consolidation: a
change agent in Nigeria banking, 2009. by Uche
Ijeoma, Pp 210 214.

2.9 FINANCIAL SECTOR DEVELOPMENT

Money supply increased in November 2004, while
banks deposit and lending rates indicated mixed
development during the month. The value of money
market assets fell during the month following the
decline in the value of November 2004 Broad money

59

supply (M2) and narrow money supply (M1) increased by

N37.2 billion or 1.7 percent and N34.2 billion or 2,7
percent, to N2,269.2 billion and N1,324.7 billion,
respectively, in the review month. The development
was attributable largely to the increase in foreign assets
(net) of the banking system, reinforced by the 2.4
percent

rise

in

Bankers

Acceptances

(BAs)

and

commercial paper (CPs) Transaction on the Nigerian

Stock Exchange (NSE) indicated improved performance
as the major indicators trended upward during the
review month.

2.10 CURRENCY IN CIRCULATION AND DEPOSITS AT

THE CBN
At N493.5 billion, currency in circulation in November,
2004 increased by N34.1 billion or 7.4 percent over the
level deposits and deposits of DMBs, however rose y 4.2

60

and 21.2 percent, respectively, during the period under

review. The shares of the three components in total
deposits at the CBN, namely. Federal Government,
bankers and others wee 61.8, 22.0 and 16.2 percent,
respectively, compared with 71.7, 17.4 and 10.9
percent in October, 2004.

INTEREST RATE DEVELOPMENT

Available data indicted a mixed development in banks
deposits and lending rates in November, 2004. average
savings deposit rate rose by 0.01 percentage point to
4.42 percent, while all other rates on deposits of
various maturities, fell marginally from a range of 7.20
13.11 percent in October to 7.06 13.09 percent in
November, 2004. The weighted average reflecting the
cautions disposition of major players in the market in
view of the on-going restructuring in the banking sector
as well as the increased activities in the capital market.

61

Prime lending rate declined by 0.04 percentage points

to 18.89 percent, while the maximum lending rates
declined by 0.05 percentage points to 20.50 percent.
Consequently,

the

spread

between

the

weighted

average deposit and maximum lending rates, narrowed

to 10.60 percentage points from 10.71 percentage
points in the preceding month. Similarly, the margin
between the average savings deposit and maximum
lending rates which stood at 16.14 percentage points in
October, narrowed to 16.08 percentage points in the
review month.
The weighted average inter-bank call rate rose form
10.3 percent in October, 10 12.7 percent in November
2004.
MONEY MARKET DEVELOPMENT
Available data indicated that the level of money market
instruments outstanding at end-November 2004 fell by
N4.7 billion or 0.5 percent to N974.9 billion, in contrast
to the increase of N12.9 billion or 1.3 percent in the
preceding month. The fall was attributable to the 5.1

62

and 2.8 percent decline in Bankers Acceptances (BA)

and commercial papers (CPS), respectively, during the
review month. Treasury Bills outstanding, however,
remained unchanged at the preceding months level of
N825.1 billion.
Treasury bill worth N260.0 billion were issued during the
month to replace matured bills of equivalent value in
November 2004. Of the total amount issued, deposit
money banks (DMBS) and discount houses jointing
accounted for N139.5 billion or 53.7 percent of the
total,

while

amounted

investment
to

Consequently,

N103.6
the

by

the

billion

balance

or
of

non-bank
39.8
N16.90

public
percent.
billion,

constituting 6.5 percent of the total issue during the

month was absorbed by the CBN.
Holdings of treasury bills outstanding by the DMBs and
discount houses increased by 16.4 percent to N597.7
billion, while that of the non-bank public increased by
11.9 percent to N191.95 billion.

63

Thus, CBNs holding declined by 28.2 percent to N35.4

billion during the review month.
CAPITAL MARKET DEVELOPMENT
Available data indicated that activities on the Nigerian
Stock Exchange (NSE) recorded improved performance
in November 2004 as all the major market indicators
trended upward. The volume and value securities
traded rose by 45.5 and 52.1 percent to 1.6 billion
shares and 17.8 billion, respectively, compared with 1.1
billion shares and N11.7 billion in the preceding month.
Transactions in the industrial loans/preferences stocks
remained dormant during the period, while the banking
sub-sector remained the most active.
Generally, investors continued interest in the banking
sub-sector reflected the envisaged increase in earning
in the sub-sector in the near future.
Market capitalization and value index rose by 5.6 and
2.6 percent to close at N1.9 trillion and 26,668.45,
respectively, from N1.8 trillion and 25,987.03 in the
preceding month. The development was due to price

64

gains in the blue chip companies as well as boost

received from activities in the new issues market,
following the new listing on the NSE during the month.
DEPOSIT MONEY BANKS ACTIVITIES
Total assets/liabilities of deposit money banks (DMBs)
amounted to N3,823.8 billion in November, 2004,
indicating an increase of N127.9 billion or 3.5 percent
over the preceding months level. Funds were sourced
mainly

from

unclassified

liabilities,

and

increased

demand deposits, while funds were used mainly in the

acquisition of foreign assets, increased claim on the
Central Government and expansion of unclassified
assets.
Aggregate credit to the domestic economy amounted to
N2,024.8 billion, representing an increase of N44.9
billion or 2.3 percent to N63.6 billion in November 2004,
reflecting largely the decline in banks overdrawn
position with the CBN during the period.

65

DISCOUNT HOUSES
Total assets/liabilities of the discount houses stood at
N71.1 billion in November 2004, indicating a decline of
N7.8 billion of 9.9 percent from the level in the
preceding

month.

Their

investments

in

Federal

Government Securities of less than 91 days maturity

amounted to N37.2 billion, representing 70.9 percent of
their total deposit liabilities. This was 12.1 percentage
point below the level in the preceding month, but 10.9
percentages

points

higher

than

the

prescribed

minimum of 60.0 percent for fiscal 2004.

Total borrowings by discount houses was N23.6 billion,
while their capital and reserves amounted to N9.5
billion, resulting in a gearing ratio of 2:5:1, compared
with the stipulated maximum target of 50:1 for the
year.

66

2.11 FINANCIAL SECTOR DEVELOPMENTS

Monetary and Credit Developments
Major monetary aggregates fell, while banks deposit
and lending rates increased in the first quarter of 1009.
The value of money market assets increased, following
largely the rise in outstanding FGN bonds and Nigerian
Treasury Bills (NTBs). Transactions on the Nigerian Stock
Exchange (NSE) were bearish as the major market
indicators trended downward.
Provisional data indicated contraction in monetary
aggregates in the first quarter of 2009. Broad money
supply (M2) and narrow money (M1) fell by 1.9 and 3.9
percent

to

N8,997.8

billion

and

N4,666.7

billion,

respectively, as against the increase of 2.3 and 7.4

percent in December 2008. the decline in M 2 was
attributed to the 5.2 percent fall in foreign assets (net),
reinforced by the 2.6 percent contraction in credit to
the domestic economy (net).
At N4,820.8 billion, aggregate banking system credit
(net) to the domestic economy declined by 2.6 percent

67

in the first quarter of 2009, in contrast to the increase

of

16.7

percent

in

the

preceding

quarter.

The

development reflected wholly the 9.6 percent fall in

claims on the

Federal Government Quasi money

increased by 0.5 percent to N4,331.1 billion, in contrast

to the decline of 2.9 percent in the preceding quarter.
The development was attributed to the rise in all the
components,

namely,

time,

savings

and

foreign

currency deposits of the deposit money banks (DMBs).

Other assets (net) of the banking system, also, rose by
9.4 percent to N3,928.4 billion. In contrast to the fall of
13.9 percent in the preceding quarter. The increase
reflected largely the decline in unclassified liabilities of
the both the CBN and DMBs during the period of under
review.
Banking

systems

credit

(net)

to

the

Federal

Government declined by 9.6 percent to negative

N3,405.6 billion, as against the increase of 3.8 percent
in the preceding quarter. The fall was attributed to the

68

decline

in

CBN

and

DMBs

holding

of

Federal

Government securities.
0.3 percent in the preceding quarter. The development
was attributed largely to the 4.3 percent decline in the
CBNs holdings.
Currency in Circulation and Deposits at the CBN
At N1,037.8 billion, currency in circulation rose by 1.3
percent in March, 2009 over the level in December,
2008. the rise was attributed largely to the increase of
11.7 percent in vault cash during the period.
Total deposits at the CBN amounted to 5,686.2 billion,
indicating a decline of 3.2 percent from the level in the
preceding quarter. The development was attributed
largely to the fall in Federal Government deposits. The
shares of the Federal Government, banks and others
in total deposits at the CBN were 89.0, 6:1 and 4.9
percent , respectively, compared with the shares of
88.0, 6.7 and 5.3 percent, in December 2008.

69

INTEREST RATE DEVELOPMENT

Available data indicated a general increase in banks
deposit and lending rates in the first quarter of 2009.
with the exception of the average savings and 7days
deposit rates,
percentage

which

points

declined by

to

2.91

and

0.26 and 0.09

6.97

percent,

respectively, all other rates on deposits of various

maturities rose form a range of 12.10 12.76 percent in
the percent in the preceding quarter?
Consequently, the Bank continued to inject fund into
the system through the expanded discount window and
the standing lending facility to enable deposit money
banks and discount houses even their positions.
Total NTBs that matured in the review quarter was
N431.54 billion, compared with N783.26 billion in the
fourth quarter of 2008. Total injections through the
government fiscal policy actions and CRR computations
fell to N902.60 billion from N1342.81 billion in the
preceding quarter. There was no injection of funds

70

through the purchase of government securities, as the

rates were unattractive to 12.85 13.58 percent.
Similarly, the average prime and maximum lending
rates widened from 8.13 percentage points in the
preceding quarter to 9.97 percentage points. The
margin between the average savings deposit and
maximum lending rates, also, widened from 16.62
percentage points in the preceding quarter to 19.33
percentage points in the preceding quarter to 19.33
percentage points.
At the inter-bank call segment, the weighted average
rate, which was 14.01 percent in the preceding quarter.
With regards to the Nigerian Inter-Bank Offer Rate
(NIBOR), the 7-day and 30 day tenors rose respectively
to 16.14 and 17.30 percent from 14.90 and 16.49
percent in the preceding quarter. With inflation rate at
14.4 percent at end-March, all deposit rates were
negative in real time.
MONEY MARKET DEVELOPMENT

71

Provisional data indicated that the value of money

market assets outstanding as at March 2009 was
N2,996.8 billion, representing an increase of 5.5percent
over the level at end December 2008. the increase was
attributed largely to the 8.8 and 21.8 percent increase
in outstanding FGN bonds and Nigerian Treasury Bills
(NTBS),respectively.
Analysis of the money ,market during the first quarter
showed a slowdown in the level of activities at the
secondary market. The liquidity squeeze which had
confronted the banking system in the last quarter of
2008 persisted in the review quarter.
Nigerian Treasury Bills of 91 182 and 364 day tenors
were offered fortnightly, while the 364 day tenor was
offered monthly. The total amount offered and allotted
in the first quarter of 2009 were N256.58 billion and
N235.57 billion, respectively while total subscription
stood at N608.75 billion. In fourth quarter of 2008, total
subscription and allotment were N780.21 billion and
N256.36 billion respectively. The surge in subscription

72

at

the

primary

market

auctions

for

NTBS

was

attributable to investors flight to safety from the stock

segment of the capital market to the government
securities (FGN Bonds), coupled with the need to
maintain their portfolio holding of bills in order to meet
regulatory guidelines.

The issue rates for the 91 and 182 day NTBs ranged
from 1.898 to 5.100 percent and 2.55 to 6.00 percent,
respectively in the review period, compared with a
range of 5.00 to 9.00 percent and 5.20 to 9.30 percent
in the fourth quarter of 2008. the issue rates for the
364 day tenured instrument ranged from 4.75 to 5.98
percent, compared with the range of 7.65 and 9.30
percent in the fourth quarter of 2008. analysis of the
issues showed investors preference for longer tenured
bills due mainly to the higher returns as well as the
need to hedge against interest rate volatility.
Monthly auctions of FGN bonds continued as 3 5 and
20 year tranches were issued in January and sub-

73

sequent reopened in February and March 2009, in line

with the restructuring of the domestic profile to longer
tenors. A total of N160.00 billion, made up of N60.00
billion 3 year Bon, N60.00 billion 5 year Bond, and
N40.00 billion 20 years Bond were floated and allotted
and the total subscription was N277.51 billion during
the first quarter of 2009. the coupon rates ranged from
7.91 to 1.95 percent for the 3 year Bond, 11.40 to 12.00
percent for the 5 year Bond and 13.21 to 13.45 percent
for the 20 year bond. In the last quarter of 2008, FGN
issue and allotment of N90.00 billion a piece, while the
total subscription was N269.17 billion. The coupon rates
were 10.00 percent for 3 years Bond, 1.50 percent for 5
years Bond and 15.00 percent for 20 year Bond.
Trading at the secondary market (O T - C) for FGN
Bonds also remained very active in the review period.
The Monetary Policy Rate (MPR) remained at 9.75
percent in the review quarter. Due to the liquidity
unease that pervaded the banking system in the review
quarter, the volume of lending by the Bank remained

74

high as deposit money banks and discount houses

accessed the facility on a daily basis. However, the total
lending facility granted to deposit money banks and
discount houses declined to N7,891.38 billion, from the
N9366.30 billion in the fourth quarter, 2008. the
development was attributed to the market players
preference for the Expanded Discount Window facility,
which

accommodates

variety

of

instruments

and

affords them longer tenor.

The maximum spread on the 90 day and 360 day tenor
at the Expanded Discount Window was pegged at 195
and 500 basis points above the prevailing MPR, in
March 2009.
Meanwhile, the eligible financial instruments used as
collateral at the Discount Window included Bankers
Acceptances (BAS), Guaranteed commercial papers
(CPS) and Promissory Notes, among others. Thus, the
total amount injected through the medium ass at March
2009

stood

at

N1,110.06

billion,

compared

N879.10 billion at end December 2008.

75

with

DEPOSIT MONEY BANKS ACTIVITIES

Available data indicated that total assets/liabilities of
the DMBS amounted to N15,542.6 billion, representing
a decline of 2.4 percent from the level in the preceding
quarter. The development was attributed largely to the
7.7 percent decline in unclassified assets, reinforced by
the 9.8 percent fall in foreign assets. Funds, which were
sourced

mainly

from

unclassified

liabilities

and

increased foreign assets were used mainly for the

settlement of unclassified liabilities. At N9,165.5 billion,
credit to the domestic economy declined by 0.6 percent
form

the

level

in

the

preceding

quarter.

The

development was attributed largely to the 12.1 percent

decline in claims on the Federal Government.
Central Banks credit to the DMBs rose by 1.9 percent
to N134.7 billion in the review quarter, reflecting the
increase in CBNs overdrafts to the DMBs.
Total specified liquid assets of the DMBS stood at
N3,123.1 billion, representing 35.6 percent of their total
current liabilities. At that level, the liquidity ratio rose

76

by 3.0 percentage points over the preceding quarters

level,

but was 4.4 percentage

points below

the

stipulated minimum ratio of 40.0 percent. The loans to

deposit ratio fell by 1.4 percentage points to 86.6
percent from the level in the preceding quarter, and
was 6.6 percentage points above the prescribed
minimum target of 80.0 percent.

DISCOUNT HOUSES ACTIVITIES

Total assets/liabilities of the discount houses stood at
N375.8 billion in the first quarter, 2009 indicating a
decline of 9.9 and 14.2 percent from the levels in the
preceding quarter and corresponding period of 2008,
respectively. The fall in assets was as a result of the
46.5 and 21.2 percent decline in claims on the Federal
Government

and

banks,

respectively,

during

the

quarter.
Correspondingly,

the

fall

in

total

liabilities

was

attributed to the 48.0 and 13.1 percent decline in

77

money at 0 call and borrowings during the period,

respectively.
Discount houses investments in Federal Government
securities of less than 91 days maturity declined by
42.2 percent to N26.3 billion, representing 8.5 percent
of their total deposit liabilities. At this level, discount
houses investments fell by 4.3 percent from the level in
the preceding quarter. This level of investment was
51.5 percentage points below the prescribed minimum
level of 60.0 in the new issues market, a total of 4.4
billion ordinary shares in favour of HIS (Nigeria) Plc; 4.6
billion shares of N0.0015 each at N6.00 per share in
favour of pinnacle point Group Plc; 4.0 billion units of
irredeemable Non cumulative convertible preference
shares of N0.50 each at N9.50 per share in favour of Fin
Bank Plc; and N50.0 billion Lagos State fixed Bonds
(series 1) were admitted into the daily official list during
the review quarter. Thus, the number of listed state
Government bonds increased to six (6). Also, there
were (8) supplementary listings during the same period.

78

Universal Trust Bank Plc was however, delisted form the

Daily official list. Following the successful take-over of
the bank by Union Bank of Nigeria Plc through the
purchase & Assumption (P & A) model of bank
resolution option. In another development, the name of
Platinum Habib Bank Plc was to Bank PHB Plc as
advised by the Board of Directors in the review quarter.
Total borrowing by the discount houses was N209.0
billion, while their capital and reserves amounted to
34.0 billion, representing an increase of 1.1 and 41.6
percent over the levels in the preceding quarter ad the
corresponding

period

of

2008,

respectively.

Thus,

resulting in a gearing ratio of 6:1:1, compared with the

stipulated maximum.
CAPITAL MARKET DEVELOPMENT
Available data indicated that activities on the Nigerian
Stock Exchange (NSE) on the first quarter of 2009 were
bearish as all the major market indicators trended
downward. The volume and value of traded securities
declined by 197 and 29.1 percent to 19.0 billion shares

79

and N106.9 billion, respectively compared with 23.7

billion shares and N150.8 billion in the fourth quarter of
2008. relative to the 68.6 billion shares and N990.4
billion in the corresponding period of 2008, total
turnover volume and value fell by 72.3 and 89.2
percent,

respectively,

in

the

review

quarter.

The

banking sub-sector attracted the highest volume of

traded securities.
The NSE All share index, which opened at 31,450.78,
closed at 19,851.89 representing a decline of 36.9
percent from the level in the preceding quarter. The
total market value of the 302 listed securities declined
by 4.0 percent to N7.2 trillion from the preceding
quarters level. The fall in market capitalization was
attributed to the price losses recorded by the highly
capitalized stocks. The 214 listed equities accounted for
N4.5 trillion or 62.6 percent of the total market
capitalization.
There were no transactions on the Federal Government
and industrial loans/preference stocks.

80

Transactions on the over the counter (OTC) bond

segment of the market indicated that a turnover of 4.2
billion units worth N4.3 trillion was recorded in the
review quarter., in contrast to a total of 3.7 billion units
valued at N3.6 trillion exchanged in the preceding
quarter.

81

CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
Here the methodology and theoretical significance of
the study are discussed. Issues relating to the choice of
research design and strategies, model specification,
data requirements and sources the nature and scope of
data collected, the data processing technique and the
theoretical significance of parameter estimate are
discussed.
The models were adjusted reliable before they were
used. The components of the model were defined and a
prior

expectation

of

the

relationship

among

the

variables explained for the purpose of giving the

reviewers

and

users

deep

insight

into

phenomenon under study.

3.1 RESTATEMENT OF RESEARCH QUESTIONS

-

Nigerian banks were undercapitalized

There was need for banks to be recapitalized

82

the

Recapitalization will increase asset base of the

banks
-

Recapitalization will improve the earnings and

profitability of banks.

There will be significant impact of recapitalization

on the Nigerian economy.

3.2 RESEARCH DESIGN

The study used quasi experimental research design
approach for the data analysis. This approach combines
theoretical consideration (a prior criterion) with the
empirical

observation

and

extracts

maximum

information from the available data. it enables us

therefore,

to

observe

the

effects

of

explanatory

variables on the dependent variables.

3.3 DATA REQUIREMENT AND SOURCES

Given the nature of the model, it is imperative that the
data that will permit the estimation of the sophisticate
equations

representing

83

the

implications

of

bank

recapitalization on bank performances and economic

growth can be collected.
These include: Gross domestic output growth rate, bank
capitalization;

volume

of

bank

assets;

aggregate

savings; investment, capital to risk weighted asset

ratio; profit before tax; liquidity ratio and ratio of nonperforming loans to total loans.
Time series data were used for the study. The data were
obtained from Central Bank of Nigeria (CBN) annual
statistical bulletin and National Bureau for statistic
(NBS).

3.4 DATA PROCESSING TECHNIQUES

The secondary data used for the study were processed
using statistical tools of pie chart, bar chart and
regression trend analysis.
.

84

3.6 RECAPITALIZATION AND ECONOMIC GROWTH

This model is set to examine the growth implication of
bank recapitalization. It attempts to establish a linkage
between increase in bank capitals, volume of assets,
aggregate savings and investment. It also showed how
these variable impact on economic growth. The model
is expressed mathematically as:
.

85

CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
The table below shows the pre and post contribution of bank
performances ratios in Nigeria, following three year before
2001 to 2003, and nine years after 2005 to 2013, using
statistical tools of pie chart, bar chart and regression trend
analysis.
The risk assets ratio (CRAR) for post recapitalization,
indicates, that banks are more adequately capitalized and
less risky after the 2005.
The pre and post recapitalization of banks show improved
performance ratios in Nigeria following three years before
(2001 to 2003) and nine years after (2005 to 2013) and
using statistical tools below.

86

Banking industry performance (2001 to 2013)

NONPERFOMING TOTAL
YEARS
2001
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
2013

RAR
10.1
14.78
15.41
21.25
22.6
20.9
19.78
19.56
18.9
18.77
18.66
17.98

LOANS
16.9
21.27
20.45
18.12
17.92
17.39
17.18
17.05
16.97
16.78
16.56
16.49

SOURCE; CBN Annual report (2013)

Statistical Computations
Capital to Risk Assets Ratio (RAR}
2001 = 12/220.09 X 360/1 = 19.79
2002 = 14.78/220.09 X 360/1=24.18
2003 = 15.41/220.09 X 360/1=25.21
2005=21.25/220.09 X 360/1=34.76
2006=22.60/220.09X360/1 = 36.83
2007= 20.90/220.09X360/1 =34.19
2008= 19.78/220.09X360/1 =32.35
2009= 19.56/220.09X360/1 =32.00
2010= 18.90/220.09X360/1 =30.66
2011= 18.77/220.09X360/1 30.40
2012=18.66/220.09X360/1=30.22
2013=17.98/220.09X360/1 =29.41

87

LOAN
796165
954627
1210039
1319243
1899346
2524298
4813489
7806751
1691414
9264805
31943971
48612681

PIE ILLUSTRATION OF RAR

BAR CHART DEMOSTRATION OF RAR

88

THE REGRESSION TREND OF RAR FOR THE PERIOD

NON PERFORMING LOANS (NPL)

2001=16.90/213.08 X 360/1 = 28.55
2002 = 21.27/213.08 X 360/1=35.94
2003= 20.45/213.08 X 360/1 = 34.55
2005 = 18.12/213.05 X 360/1 =30.61
2006= 17.92/213.08 X 360/1 =30.28
2007= 17.39/213.08 X 360/1 =29.38
2008= 17.18/213.08 X 360/1 =29.03
2009= 17.05/213.08 X 360/1 = 28.81
2010= 16.97/213.08 X 360/1 =28.67
2011= 16.78/213.08 X 360/1 =28.35
2012= 16.56/213.08 X 360/1 = 27.98
2013= 16.49/213.08 X 360/1 = 27.85

89

PIE CHART ILLUSTRATION OF (NPL)

BAR CHART DEMOSTRATION OF (NPL)

90

THE REGRESSION TREND OF (NPL)

TOTAL LOAN GRANTED DURING THE PERIOD

2001=796165/112836829 X 360/1 = 2.54
2002 = 954627/112836829 X 360/1 = 3.05
2003 = 1210039/112836829 X 360/1=3.86
2005 = 1319243/112836829 X 360/1 =4.21
2006 = 1899346/112836829 X 360/1 = 6.06
2007 = 2524298/112836829 X 360/1 = 8.05
2008 = 4813489/112836829 X 360/1 = 15.36
2009 = 7806751/112836829 X 360/1 = 24.91
2010 = 1691414/112836829 X 360/1 = 5.40
2011 = 9264805/112836829 X 360/1 = 29.56
2012 = 31943971/112836829 X 360/1 = 101.90
2013 = 48612681/112836829 X 360/1 =155.10

91

PIE CHART ILLUSTRATION OF TOTAL LOANS

BAR CHART DEMOSTRATION OF THE TREND OF TOTAL LOANS FROM 2001

T0 2013

92

REGRESSION TREND FOR TOTAL LOANS

REGRESSION TREND SHOWING THE RELATIONSHIP BETWEEN RAR, NPL &

T/LOAN

93

Recapitalization:
The

purpose

of

this

subsection

is

to

establish

relationship that exists between recapitalization and

economic growth as well as testing the significant of
the relationship. This study enable us to validate the
second hypothesis using statistical tools, the impact of
recapitalization is therefore not in doubt.

94

CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.0 INTRODUCTION
The summary of findings based upon the data analyzed
is presented in this chapter.
Based

on

these

conclusions

were

findings,

recommendations

subsequently

drawn.

and
These

recommendations are to encourage the Apex bank to

forge

ahead

with

the

second

phase

of

the

recapitalization.
5.1 SUMMARY OF FINDINGS
a.

Recapitalization will create employment opportunities

b.

Recapitalization will eliminate the phenomenon of

family banks and poor governance.

c.

Operational synergies from mergers and acquisition will

promote efficiency in the new bank.
95

d.

Enhancement of liquidity and capitalization the stock

market.

e.

New banks will invest heavily in training and manpower

development.

f.

New banks will invest in infrastructure.

g.

It

will

improve

the

profitability

and

operational

efficiency in the new bank.

h.

Create effective supervision on 22 banks instead of 89

banks.

i.

Ownership structure of the bank will be modified.

5.2 CONCLUSION
There is little or no doubt at all that recapitalization of
Banks was a bold and progressive step not only for the
financial sector but also the Nigeria economy stands to
greater chance to become the 20 economies of the
world.

96

The Oxford Advance Learner English Dictionary Fourth

Edition (1999), defines consolidation as a positive of
power or success stronger so that it is more likely to
continue and Merger as the combination of commercial
compares into one.
Acquisition on the other hand was defined by another
source as a company taking a controlling ownership
interest in another firm, could be legal subsidiary of
another firm or selected asset of another firm.
The indication that Banks should be favorably disposed
to

recapitalization

(merger

and

Acquisition)

after

considering various options available to tem on account

of the introduction of the N25 billion recapitalization in
view of their importance to the Nigerian economy.
Some banks are looking at the possibility of getting
investor to shore up their capital, some are looking at
the capital market option, while others are considering
mergers and acquisition.

97

The process of recapitalization and restructuring of

Nigeria (commercial) banks had gathered pace since
the decision was made by CBN on the recapitalization
of Nigeria Banks from N2 billion to N25 billion by
December 31st, 2005.
The proposed recapitalization as confirmed by the CBN
governor, Professor Charles Soludo, is a subtle way to
compel Nigeria Banks to merge so as to strengthen in
totality

the

Nigerian

banking

system

through

consolidation (Mergers and Acquisition). The process

would further enable the banking sector to meet up
with international standards. Also, to be able manage
fewer banks instead of 89 banks.
It may involve the purchases of another firm asset or
stock while the acquired form continues to exits as a
legally owned subsidiary for the purpose of this study,
Mergers and Acquisitions will be deemed to have
occurred when two or more organization joins together
all or part of their operations. Globally, such business

98

combinations have involved various size of companies

as well as assets and have cut across economic sectors.
While many business combinations have been well
received by parties involved, other had done so with
stiff resistance often resulting in long battles to prevent
the combinations.
With the CBN regulation and the systematic withdrawal
of Federal funds from the banks, so many banks were
on the bank of extinction and had either go public or
trying to position themselves as bank of choice for
possible merger or acquisition by other banks. This new
development had also impacted on employment, as
most top management would be affected and other
young staff would be affected and other young staff
would be thrown into the labour market in the bid to
have the required number of directors by the regulatory
authorities and on the economy at large..
In Nigeria today, a number of banks wanting to merge
had run into difficulties, because most

99

Nigeria banks

are not quoted on the stock exchange and the assets of

some are really bad. The effect of the merger is that
merging banks in the country. Under the current
dispensation may lose their license and be issued new
ones to reflect the consolidated outfit.

5.3 RECOMMENDATION
A.

Security
Security of banks should emerge as the highest priority
after recapitalizations. Armed

robbery raids on banks

should be a thing of the past because of the huge funds

available, which should not be spared to acquired state
of the art protection for banks.
B.

Services should be improved upon

With so much money at the disposal of banks,
everything should be done to improve services to

100

customers. The quality of banking services should really

improve, the turn around time of a simple banking
transactions such as deposit of withdrawal of cash
should be in seconds; which means banks customers
still spend very short time in the Banking hall.
The wide spread development of automated Teller
machines (ATM) by banks for easy withdrawals should
be organized tot hat long queues

at the machines

locations should be eliminated. Banks should also find a

way

around

the

rigorous

documentation

process

involved in simple transactions to reduce the turn

around time.
C.

Returns on Investments should Increase

Since 2006, only two banks have declared dividends of
N1 per share, which was Ostensible motivated by their
desire to go to the capital market to raise funds.
Most shareholders of banks should be made to smile to
their bank given the huge investment, they have made.

101

Banks should not rely on their reserves to execute

these

projects,

which

directly

deny

shareholders

distributable profit as dividends.

D.

Failed Banks Cases should be Resolved on Time

As cases drags on, the depositors funds trapped in
these banks romaine beyond the reach of their owners.
According to the NIDC, N144, billion had been trapped
in failed banks between 1994 and 2006.

In

consolidation

Policy

should

be

Implemented

Judiciously without fear or favor.

Irregularities and even improprieties as evident in the
spring. Wema and First5 Inland Banks cases should be
avoided. These banks were allege to have failed the
N26 billions market the end of 2005, yet they got the
certification of CBN. Besides some other banks were
allege to have used depositors funds to share up their
capital base, while others lent directors money to
invest. Spring Bank produced the first test case for

102

CBN, which failed to respond appropriately because of

perceived complicity

103

REFERENCES
Adedipe (2007:37) The Effect of Bank Consolidation on the
performance of Banks in Nigeria.
Ajayi

(2005:2)

Banking

Sector

Reforms

and

Bank

consolidation : Conceptual Framework, Bullion vol. 29. No.

2.s
Bakare A.S (2011) The Trend of Growth Implications of Bank
Recapitalization in Nigeria.
CBN, (1990): Monetary and Credit Guidelines for 1991
Fiscal Year.
CBN, (2002): Banking Supervision Annual Report
CBN (2004): Banking Supervision Annual Report.
CBN, (2005): Banking Supervision Annual Report
CBN, (2006): Banking Supervision Annual Report
Imala O.I (2005): Challenges of Banking Reforms and Bank
Consolidation in Nigeria, CBN Bull, 4(29): 2-27.
Omoruyi, S.E (1991): The Financial in Africa Overview and
Reforms in
Economic Adjustment Programmes CBN Econ. Finance.
Rev, 29(4): 110-125.

104

Omolapo. A.A (2008): Implication of Capitalization on Bank

Financial
Health. J. Econ. Theo. 2(5): 4-19.

105