The N25 Billion Naria Recapitalization Order in Nigeria Commercial Bank Causes, Problem and Prospects
The research topic- the N25 billion naira recapitalization on the commercial banks by the CBN (central bank of Nigeria) has been occurring impositions and well known. Monetary policy in the economy for effective and standard financial stability in the circulation.
Historically, the increase in the capital base of banks in Nigeria started in 1952 when indigenous banks had N2, 500 and expatriate bank had the sum of N200, 000 as their minimum paid –up capital before incorporation and operation.
In 1958, the minimum capital base rose up for the expatriate banks to N400, 000 while the indigenous banks had their not hampered (2500) .the capital base requirement was change in 1962 when the indigenous banks expatriate banks still to the sum of N400, 000 .in 1969, expatiate banks capital rose to N1.5 million while that of the indigenous banks was N600,000.
In 1979, surprisingly, there came the advent of merchant banking system and the merchant bank came up with a minimum paid-up capital of N2 Million. This led to the deregulation and liberalization of banking licensing in 1984 also the structural adjustment programme (SAP) motivated policy .
In 1988, commercial banks had N10 million as their capital base while merchant banks had a capital base of N6, million. In 1989, the capital base for commercial banks rose to N20 million while merchant banks capital base rose to N12, million still in 1989, the introduction of community banking system with a paid-up capital of N250, 000.
However, another amendment was made in the year 1991, to the minimum capital base thereby, prompted commercial banks pay N50, million, merchant banks N40 million and community banks N500, 000 as their capital base,
In 1997, uniforinity emerge in the banking industry when the commercial banks and merchants banks were compelled to maintain a minimum paid –up capital of N500 million while the community bank should stand on the time of N3 million prescribed by the central bank of Nigeria.
In 2001, the capital base for both commercial and merchant bank rose to N1 billion. In 2004, the capital base was high rated N2 billion in 2002 to N25 billion likewise community bank at N50 million.
The issues on the concurrent increase in the minimum paid up capital dose not just emerge without some prerequisites. The prerequisites that led to the capital base increment are as follows:
- CONTINUOUS INFLATIONARY PRESSURE
The inflationary rate or pressure in Nigeria is high there by making excess money chasing fever goods or commodity in the market and to curb this, the banks need to review an upward capital base to be consistent with the pressure applied in the economy by inflation. Necessities required that capital base be revisited periodically to be grossly adequate to perform effectively the functions expected during inflationary period.
COMPETITION WITH FOREIGN BANKS
In the early days of banking industry, expatriate bank were allowed to operate in the country and they brought about innovations and increased competitions in the industry. In order to standardizes the indigenous banks with expatriates the capital base had to be revived periodically.
3, MANPOWER DEVELOPMENT
In order to meet up with the challenges of the modern banking industry upon the complexity coming with time, it there fore follows that banks need to step up their capital base to be in a position to scout for, remit personnel’s conduct orientations, involve effective training and retraining and also retaining their proficient staffs.
4, TECHNOLOGICAL ENHANCEMENT
With the current are of development and advancement in the technological globalization, the rise of sophisticated equipment in the banking business is therefore required, and there became the need for capital base of banks to be increased to enable the operating banks acquire and utilize these equipment in their businesses also, be able to replace and repidate them at when necessary.
PROTECTING EFFECT OF NON-PERFORMING CREDITS.
Bank ‘s with doubtful, problem or non- performing credit or loans, it is expected that such losses should be charged against the capital of the owners of the banks. However, if the capital is mad equate, the bank will have to full back on the depositors fund there by transferring the owner’s risk to credit. Therefore, the review of the capital base will eventually resolve that.
6, PREVENT DEVALUATION OR EXCHANGE RATE DEPRECIATION
The review of minimum capital base by banks become necessary because of the depreciating exchange rate of the naria against the international currency. That is, the rate at which the naira –exchanges for other currencies such as (&) U.S Dollars and (E) pound sterling or mutchmark is depreciating and the operating banks in the country need to increase their paid up capital to reflect the depreciating exchange rate of the Naria.
7, COMPLIANCE WITH INTERNATIONAL STANDARDS
Certain standards which banks should meet internationally in relation to their capital base in which, when lacking in a given economy makes the banking system to be looked upon as weak, unstable and unlnerable to distress as banks strive to become more competitive & resilient to shocks as well as re positioning their operations to cops with the challenges of the increasingly globalized banking system In other nations like Brazil, Argentina, Korea, united states of America and south Africa.
8, ENCOURAGE RISK MANAGEMENT
Recapitalization is sometimes given to facilitate the habit of risk management within an organization. In Nigeria, being a developing nation, needs more and more of advancement, which is of long-term project. Therefore, the recapitalization on banks came up to make the managers embark on long-term project like, Estate and housing management, sponsoring of programmes in schools also, financing small medium scale enterprises.
REVIEW OF A DIRECTLY RELATED LITERATURE
Here the researcher review the literature of other people that have in the past written on the same topic to be able to highlight on the differences an areas of agreement of the works with the present work.
Factually, the researcher read through symposium titled ‘’ THE IMPLICATIONS OF GLOBALIZATION IN THE BANKING INDUSTRY’’ from a journal- the Nigeria bankers published in October 1999. Thus;
In 1997, the central bank of Nigeria (CBN) under the governorship of Mr., Joseph Sansui, came up with a directives and a deadline of December 1998, for all banks in operation then in Nigeria to rise their paid up capital to a minimum of N500, million. By December 19998, the central bank in affiliation with the NDIC, (Nigeria Deposits and insurance corporation) had liquidated 26 commercial and merchant banks that failed to comply and that were distressed, 20 other banks were still unable to meet up with the capital base requirement ( marginalized ) were given graces to meet up within a specified and adjusted period otherwise, face sanction from the CBN.
Despite the whole socks on commercial and merchant banks, there were some benefits attached to it and was enjoyed by those banks that survived the trail.
During the period of the recapitalization, the following were the impacts derived and enjoyed by the nation and industry;
INVOLVEMENT OF FOREIGN BANKS
In order for the commercial and merchant bankers to meet up with directive, they want outside the nation (liberalization) to secure connections with foreign financial investors and banks, advising them on the profitability of investing in the industry thereby prompting them to subscribe shares in the local banks bringing about globalization in the nation so, raising their capital base.
With this, mitigation of wastage of national resources became possible in the human and material (Assets), which would have been classified as distressed or unemployed and may have been brain drained.
AVAILABILITY OF GOOD MANAGEMENT
Through the directive imposed, the banking industry strategies more on the acquisition and utilization of personnel’s proficiently to formulate or create the competent management expected to carry out the required task.
Every survived bank evaluated the usage of qualified human resources to facilitate their returns quotients (RQ). Through about how to widen the range of their products also, are committed and able to deliver quality services especially in the aspect of risk management and financial analyzing mainly long-term risks.
COMPETITION WITH THE WORD’S BANKING INDUSTRY
The recapitalization paved way for the Nigerian banking industry to complete and seek a stand in the international banking rating, that is attending the world’s banking conferences to chat with the professional and experts in the field.
The directives likewise, created avenue for the Nigeria banks to gain access to involvement of the utilization of modern technology to face the millennium burgeon (Y2K COMPLIANCE)
Furthermore, it helps standardizing the nations currency in the international world, in the foreign exchange market and also, regulating compliance and transparency in the banking industry curbing money- laundering and bankruptcy
THE EFFECTS OF THE RECAPITALIZATION ON INSURES ACT 2003.
Here, the researcher again, reviews the literature of other researcher that have in the past written on another topic but related to able to highlight on the areas of agreement of the works with present work, thus;
Insurance act 2003, compellet on insurers (insurance companies) to deposit as recapitalization N350 million with the insurance board through banks before incorporation and operations.
The new capital base for insurers ranges from levels of insurance market that is, life and property insurance raises from N90 million to N350 million, the underwriters in general business category raises from N70 million to N200 million and life assurance from N20 million to N50 million respectively.
The combined effect of rising liquidity and underwriting disclphne is that;
A, premium risks which ordinarily finds their way outside the country on account of weak capacity and poor technical skills are gradually coming back to the industry with a massive impact on the industrial market.
B, There has been a large number of insurance companies competing within themselves especially for small business available, also obtaining and bidding for awarding of contract from the government.
From the effect, emergence of potentials and proficient experts in the local insurance market, thereby, reshaping and redefining the insurance environment market as real opportunities for investment quotients (1Q) likewise, effective and improved participations in the market.
Since recapitalization, insurance companies are getting more organized in their operations and it is showing in reduction in complaints over claims defaults.
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