Amount: $23.81 |

Format: Ms Word |

1-5 chapters |


Bank Name: FCMB Bank

Account Type: Savings
Account number: 7749601025

Bank Name: Access Bank

Account Type: Current
Account number: 0107807602



The Nigerian banking industry remains one of the most regulated in the economy, as it is one sector of the economy that helps stimulate economic growth and development. The industry has remained at the cutting edge so as to be able to meet up with both local and foreign standards. As a result, the adoption of a more stringent reform in 2004, which is now referred to as the ‘Soludo era’ in order to create a strong and reliable banking system that conforms to international standard, and plays active developmental roles in the economy.

The study is centered on the impact of the recent capitalization exercise on the Nigerian economy. The methods adopted for data collection were basically secondary method of data collection. The data covers the 24 banks operating in Nigerian after the N25 billion capitalizations and consolidation exercise, and statistical regression was adopted in the analysis of data collated.

The remaining part of the project clearly highlights the findings of the study; conclusion and recommendations were also given based on the entire research work.





In every economy, whether developed, developing or underdeveloped, the banking sector remains one of the most regulated. It is seen as the engine that drives the economy towards growth and sustainable development.

The banking industry around the world has witnessed remarkable changes in recent years, given the increasing wave of globalization, structural and technological changes and integration of financial markets (Kama, 2006).

Prior to the Soludo era, banks’ capitalization has been used three (3) times. In 1990, the minimum capital base was raised from N10 million to N20 million. In 1997, it was raised from N50 million to N500 million, then to N1 billion for old banks that same year and N2 billion for new banks as from December, 2002.

In 2004, when the Central Bank of Nigeria (CBN) rated the performance of licensed banks using the CAMELS Parameter, it revealed that ten (10) banks were “Sound”, fifty-one (51) were rated “Satisfactory” and Sixteen (16) were rated “Unsound”. The marginal and unsound banks exhibited such weaknesses as undercapitalization, illiquidity, weak asset quality and poor earnings (CBN, 2004).

It is against this background that the former CBN  governor, Professor Charles Soludo, on the 6th of July, 2004, a day referred to as  “Black Tuesday” in the Nigerian banking industry, came up with his plan to comprehensively reform the banking sector. The plan had a 13 point agenda aimed at recapitalizing and consolidating the industry for efficient service delivery.

The key elements of the 13 point reform programme include;

  • Minimum capital base of N25 billion with a deadline of 31st December, 2005;
  • Consolidation of banking institutions through mergers and acquisition;
  • Phased withdrawal of public sector funds from banks beginning from July, 2004;
  • Adoption of risk focused and rule based regulatory framework;
  • Zero tolerance for weak corporate governance, misconduct and lack of transparency;
  • Accelerated completion of the electronic financial analysis surveillance system (e-FASS);
  • The establishment of an Asset Management Company (AMC);
  • Promotion of the enforcement of dormant law;
  • Closer collaboration with EFCC and the establishment of the financial intelligence unit.

However, of these reform elements as listed above, two are of paramount importance;

  • Minimum capital base of N25 billion with a deadline of 31st December, 2005; and
  • Consolidation of banking institutions through mergers and acquisition.

The new capitalization requirement by the CBN has been trailed by an avalanche of reactions. While some of these reactions have been positive in light of the anticipated benefits of the reform to the economy, others have been negative and critical. In spite of these reactions, what is needed in Nigeria are financially strong institutions with good capital base that would be able to withstand threats, particularly in the wake of globalization of the financial industry.

With the current global crisis, there has been a paradigm shift concerning the state of the Nigerian banking industry. In light of this, recapitalizing and consolidating the Nigerian banking sector might turn out to be what will push the economy from its present position to its future goal, that is growth and development.


In spite of the upward review of banks’ capital base from time to time, most banks in Nigeria continue to experience operational difficulties. The 89 deposit money banks that operated in the country as at 2004 constituted various degree of soundness, which made the structure of the industry to be highly concentrated.

Each of the 89 banks had expensive head quarters, separate investments in software and hardware, heavy fixed cost and operating expenses and had relatively few branches, leading to high average cost for the industry. This in turn put undue pressure on the banks, making them engage in sharp practices as a means of survival.

Furthermore, most of the banks were not engaged in strict banking business, in terms of savings intermediation, but mostly trading in foreign exchange, government securities and sometimes in direct importation of goods through fictitious company names.

Other factors that have caused continual problem in the Nigerian banking industry include;

  • Low capital base,
  • Weak corporate governance,
  • Gross insider abuses,
  • Neglect of small class savers and
  • Inaccurate reporting and non-compliance with regulatory requirement, late or non-publication of annual account.

These problems were what called for another review of banks capital base from N20 billion to N25 billion.


  • To find out the relationship between capitalization and the growth of the economy.
  • To determine if there is a relationship between capitalization in the banking sector and efficiency in the banking industry.
  • To find out if the problems posed by the Central Bank of Nigeria (CBN) were enough reasons to carry out the N25 billion recapitalization exercises.
  • To explore the outcome /benefits of the exercise on the banking sector and the Nigerian economy.
  • To find out the challenges associated with the exercise.
  • To proffer relevant suggestions and recommendations towards the adoption of capitalization and consolidation as a solution to failures and other problems being faced by banks in the economy.


Hypothesis 1

Hi: That there is no significant relationship between capitalization in the                 banking sector and the growth of the Nigerian economy.

Ho:  That there is a significant relationship between capitalization in the                 banking sector and the growth of the Nigerian economy.


The study will be of relevance to the management of banks, as it provides relevant information on how successful the programme has been on the survival option in the banking industry.

The study will be of great relevance to individuals, corporate organizations and even the government. This is because every one is directly or indirectly a stakeholders in the banking sector.

This study will also assist the academic community and other researchers, as it provides new knowledge about the implementation of capitalization and consolidation as a concept.

Finally, the study will be of relevance to the regulatory authorities, as it provides relevance data towards formulation of relevant policy on the implementation of capitalization in the banking sector, and how capitalization and consolidation can contribute to the growth of the economy.



The scope of this research work is centered on the N25 billion recapitalization exercises of banks and its impact on the economy. It covers the situation of the Nigerian banking sector as at when the 89 banks were in operation, the process involved in the consolidation exercise and the effect of the exercise on the banking sector and the economy in general.

This study, is aimed at getting relevant and reliable information to enable the researcher make proper analysis of the research work. However, it should be noted that a study of this nature is faced with some limitations.

A major limitation of this study was the unwillingness of the management of the financial institutions from which information was gathered to disclose some relevant information on the implementation of the capitalization exercise on banks because such information were considered confidential.

In addition to this, the duration of time is quite short to adequately capture the actual effect of the exercise, since the programme is merely four years old.

Another limitation of this study, is the distance associated with the data collection of the study.


  • Merger: A merger is the amalgamation of two or more separately existing companies to form a new company.
  • Acquisition: This refers to the purchasing of controlling interest in one company such that the acquired company becomes a subsidiary or a division of the acquirer.
  • Camels: This is a criteria used to rate the soundness of financial institutions. The acronym “CAMELS” stands for, C-Capital Adequacy, A-Asset Quality, M-Management Quality, E-Earnings, L-Liquidity, S-Sensitivity.
  • Capital Base: This is the paid up capital and reserve unimpaired by losses. It is also said to be the level of capital necessary to ensure the bank’s financial soundness and health.
  • Financial Institutions: They provide services as intermediaries of capital and debt market. They are responsible for transferring funds from investors to those in need of such funds. The presences of financial institutions facilitate the flow of monies in the economy.
  • Reforms: This refers to the process of restructuring an existing status-quo so as to make it perform effectively and efficiently. Reforms take place in every sector of the economy, especially in developing countries.