AN ASSESSMENT OF REPOSITIONING THROUGH RECAPITALIZATION OF BANKING SECTORS IN NIGERIA


AN ASSESSMENT OF REPOSITIONING THROUGH RECAPITALIZATION OF BANKING SECTORS IN NIGERIA

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CHAPTER ONE
INTRODUCTION

BACKGROUND OF THE STUDY
The Nigerian banking industry has witnessed tremendous changes and expansion since the mid 1980s. Unfortunately the growth and expansion in the sector are not the manifestation of a sound or vibrant banking system known anywhere in the world. Most banks in Nigeria are characterized by inadequate capital base, poor services, high rate of bankruptcy, lack of management expertise, bad debt syndrome and greater exposure to fraud. In addition, many have poor database and lack of reliable information on which sound policy decision can be taken by Board of Directors. This is a fragile banking system which is waiting to explode from the contagion effects of the liquidation of over eleven banks which are technically considered distressed. Currently there are 89 banks in operation in Nigeria, with 79 being considered marginal or fringe players and with over 1,036- Fraud cases in banks in 2003 while N9.3 billion was lost through fraudulent activities.

A poor banking system of this nature creates unquantifiable problems and crisis in the economy which could result in thousands of people losing their jobs, lost of depositors’ money, lost of confidence in the banking system and above all the banks can have little contribution to the economic development of the country.

Essentially, the objectives of the new, banking sector reform through recapitalization of N25 billion for each bank intends among other things to take proactive steps to prevent an imminent systemic crisis and collapse of the banking industry, create a sound banking system that depositors can trust, create banks that investors can rely upon to finance investments in the economy to drive down the cost structure of banks and make them more competitive and development oriented and to ensure Nigeria meets minimum requirements for regional financial system integration, effectively, positioned to be a key. African regional and global player.

Taking this step is imperative for the survival of the fragile banking system in Nigeria and to be at per with the global trend. Generally speaking, the current average capitalization of banks in Nigeria is less than $10 million or N1.3 billion and with the largest bank in Nigeria having $298 million compared with the smallest Malasian bank with $526 million. This is an important indices for an understanding of the unique nature of the Nigerian banking system among developing economics.

In the study an attempt has been made by examining the fragile Banking system of Nigeria, the need for recapitalization, the various strategies by Commercial Banks to meet the recapitalization requirements and how recapitalization can enhance repositioning of Commercial Banks in competitive marketing environment of Nigeria. Although the full policy implementation of recapitalization takes effect from December 2005, this study provides an insight into the anticipated challenges of post-recapitalization era. These challenges as evident in the current mergers and acquisitions by smaller Banks provide input for academic research and analysis. In addition, it is also the intention of this study to outline the various repositioning strategies of Hallmark Bank Nigeria Plc. towards meeting the challenges of the Banking sector reforms in maintaining a leading position among New Generation Banks in meeting the CBN recapitalization requirement deadline.

It is hope that the finding of this research study would provide a pioneering blue-print for commercial banks in Nigeria to adequately cope with post-recapitalization challenges of the marketing scenario.

STATEMENT OF THE PROBLEM
The rising incidence of bankruptcy and distress syndrome in the Nigerian banking system caused by poor capital base, lack of management expertise, bad debt syndrome corrupt practices and fraud among others have created serious concern to depositors investors and the national economy. The need to address these issues have brought the need for redefining the capital base of commercial banks in Nigeria to make the banking sector strong, dependable and viable with minimal distress and meaningful contribution to the growth of the Nigerian economy. The recapitalization of N25 billion makes it imperative for commercial banks to seek for investors and to into mergers to meet the December 31st 2005 deadline.

The banks that meet up the recapitalization targets may be fewer in number, stronger in capital base, well positioned to carry out full the main challenges before the competing banks is to evolve effective marketing strategies to attract customers to patronize their services and to maintain a leading position in the industry.

Hallmark Ban Nigerian Plc as a successful emerging bank under the new recapitalization policy has a well designed, modern financial marketing network, better positioned for the post recapitalization competitive marketing of financial services in Nigeria.

This study makes a critical analysis and examination of the marketing activities of Hallmark Bank Nigeria Plc, Abuja designed to achieve competitive advantage. It hoped that the findings of this study would provide an important blue print for effective modern marketing of banking services in Nigeria.

OBJECTIVES OF THE STUDY
The main important objective of this study is to examine positioning strategies for competitive advantage through recapitalization in the banking industry with a special reference to Hallmark Bank Nigeria Plc. Abuja. The study is specifically designed to achieve the following objectives:
a) To present the various shortcomings of the current banking system, of Nigeria.
b) To provide the rationale behind the CBN recapitalization policy for. Commercial banking in Nigeria.
c) To identify the challenges facing commercial banks towards the dateline for recapitalization.
d) To find out the vicarious plans of action or strategies for competitive advantage at post recapitalization epoch.
e) To provide recommendations and solutions identified by the study.

SCOPE OF THE STUDY
This research study focuses on the marketing activities of Hallmark Bank, Nigeria Plc. Abuja Headquarters and o its various branches nation wide. Though data collection might be centrally to done, through the head office in Abuja but the analysis and interpretation of findings may cover all the state branches nation wide.

SIGNIFICANCE OF THE STUDY
The significance of this study has essentially on the important contributions made by the study to individuals commercial banks, investors, financial analysts and others interested in the genuine development of the Nigerian banking system through recapitalization.

First and foremost, the management of Hallmark Bank would find this study very compressive in presenting the clear picture of the crisis and conflicts in the Nigerian banking system, including strategies to meet the CBN recapitalization through various mergers and consolidation strategies. In addition, the views of seasoned bankers researchers and financial analysts on the future of the Nigerian banking system under the recapitalized policy would be provide to make it easier for the bank to discern areas of threats as well as opportunities in the years ahead.

Secondly, recapitalization being a new concept in the banking industry and even in academia, thus research project would provide an important reference material for people from all walks of life, including students, bankers, investors and the general public.

Finally, it is also hoped that the various suggestions and recommendation presented in this study would serve as effective strategies in meeting the post- recapitalization marketing activities of commercial banks in Nigeria.

RESEARCH QUESTIONS
This research study intends to address the following research questions:
1. Why should the minimum capital base for commercial banks in Nigeria be raised to N25 billion?
2. Can recapitalization of the banks result in the desired positive change for the Nigerian economy?
3. What are the implications of the reform on the existing job situation in the country including the job security in the banking industry?
4. What will happen to customer accounts (loans and deposits) for banks that cannot meet the requirements?
5. If a bank is acquired or goes into mergers in the existing consolidation process, what does this imply for bank’s existing customers that do not fall within its redefined target market?
6. Beyond the N25 billion are there further increases in the capital requirements for banks in future?

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