PROPOSAL
This research work investigates the effect of N25billion minimum capital base on the banking sector in Nigeria. A case study of the first bank of Nigeria Plc will be carried out to measure the extent to which increased minimum capital base of banks will affect the economy of the nation that is to say whether this move by the central bank of Nigeria will bring a positive effect on the economy. Therefore the aims of this study are as follows:
As a matter of facts this move must show that it has some benefits, which is promising as to attract investors.
After a comprehensive review of literature data will be collected and questionnaires issued to experts on economic matters and bankers to elicit useful information that will help in actualizing the objectives of this research work.
In the light of the above certain constraint will be faced in this research work which include non disclosure of certain facts due to the secretive nature of banks for security purposes lack of research materials was a constraint in that it is a new move in the banking sector and highly limited time as a result of combining academic work and research work.
Finally what I hope achieve at the end of this research work is to fund out the reasons for the increase in the capital base of banks and how this more will help improve the economy of the nation.
TABLE OF CONTENT
CHAPTER ONE
1.0 Introduction
CHAPTER TWO
2.0 Review of related literature
CHAPTER THREE
3.0 Research design and methodology
CHAPTER FOUR
4.0 Presentation analysis and interpretation of data
4.1 Presentation of data
CHAPTER FIVE
5.0 Summary of findings conclusion and recommendations
Bibliography
Questionnaires introduction letter
Questionnaires
CHAPTER ONE
INTRODUCTION
The central bank of Nigeria announced a new capital requirement for Nigeria banks of 25 billion Naira (about US & 181milion) this reflects an increase of from its previous 2billion Naira (Us & 14.5 million) The banks governor has explained that by this he plans to encourage merger and acquisition among the 89 banks currently operating in the country to consolidate and strengthen the nations banking industry. He also hoped that this development would ignite investors confidence on the banks force down interest rate which currently pages at 35% thereby making funds cheaply available to borrowers. The directive to increase the capital base of Nigerian bank in an attempt to make banking more stable . The perception was that a number of small banks were too prone to unaccountability and corruption it is likely that many banks would merge and Nigeria would end up with a relatively small number of better capitalized more accountable banks. These banks would be able to make more longer terms loans that before enhancing Nigerians ability to finance developed project locally part of the challenge is to build confidence in the process if banking in Nigeria clearly the banking system in Nigeria is evolving that is its’ in a transition phase between being a basically short term local colonial system to a bigger operation that can be seen as a facilitator of western style development it seems clear that there is a whole lot of money in the informal sector” that the banking industry would like to see get deposited.
It seems likely that the reorganization of Nigerian banks will lead to a drop in real estate value for some time because less mortgage money will be available. But ultimately the hope is that Nigeria banks will have the where withal to finance large projects that hither to have always had to go abroad for capita.
However this discussion on the effect of N25billion minimum capital base on the banking sector on Nigeria was objected by so some people and organizations. The Nigerian senate committee on financial services opposed this new legislation arguing that it would lead to massive distortions in certain area of the economy. They expressed their worry over the likely effect of the directive. As events unfolded however it dawned on the bankers as well as the stakeholder of banks that the professor of economic had already made up his mind as he was not very willing to shift ground. Instead of accommodating other views he concentrated on providing more facts to betters his demand for the N25 billion new capital base.
The new capital base of N25 billion comprised paid up capital and reserves unimpaired by losses the CBN government professor Charles Soludo said adding that the only legal mode of consolidation allowed are mergers and outright acquisition/ takeovers. A mere group arrangement is not acceptable for meeting the N25billion.
However the increase in capital requirement for licensed banks to a new minimum base of N25billion is intended to radically redefine the financial services industry land scope on Nigeria. The stated objectives of consolidation of the banking sector include ensuring that fewer but stronger banks emerge by the effective date of December 2005. to meet the challenge of the new capitalization within the tight line and achieve CBN’S objectives of industry consolidation many banks will explore mergers and acquisitions.
In anticipation of he spate of mergers and acquisitions activity CBN has published a guideline to facilitate mergers and acquisitions transactions within the industry as well as outlined a number of incentives to encourage the consummation of mergers and acquisitions deals. Discussions and negotiation towards consummating mergers and acquisitions deal in advance of the stipulated deadline have commenced. While the focus is on creating the optimal ‘deal’ in terms of financial operational and governance arrangements the consideration of post-deal realties that impact on the deals’ ability to deliver superior value need to being now,
The reality of the global experience is that consolidation activities driven by the imperative of growth are increasing but investors remain skeptical of the value creation potential of mergers and acquisitions deals. Research has shown that the most successful mergers and acquisitions are those that effectively integrate the synergies of the parties to not only achieve growth but also create shareholder value. Focusing on post- merger integration issue at ht pre-merger stage of the deal is key factors in consummating mergers and acquisitions deals that create value for shareholders.
Expectedly discussions and negotiations towards consummating merger and acquisitions deals in advanced of the stipulated deadline have commenced. While form the perspective of CBN as a regulator of the financial service industry the objective of bigger stronger banks is clear surely the emerging bank have additional objectives that include superior value creation in addition to growth financial operational and governance arrangements consideration of post deal realities especially regarding how such could impact ability to deliver superior value when it is most critical.
In the ongoing effort among banks to rapidly consolidate and meet the capitalization deadline there is a real threat that a reliance on rules of thumb and dusty benchmark and outdated approaches may be adopted. In essence there should not be separate mergers and acquisitions and post merger integration processes but a holistic approach to the deal from strategy to target identification and valuation to integration. This involves looking downstream at business information and it (information technology)system core processes and the nuts and bolts of how things work and in getting people who know how to design and implement changes to these systems and processes involved up front especially during the valuation stage.
What is needed is on organized and logical approach that includes all of the necessary steps and activities but which is flexible enough to match the unique requirements of the deal. The entire focus of the process should be on value creation rather than on integration alone
Merger and acquisition have been recommended among uptimes open to banks beef up their capital base to N25billion within 18 months by the governor central banks Porf Charles Soludo. Already some banks have started the consultative process that would lead to a great deal of consolidation in the financial markets.
While merger and acquisition are more than too hundred years old as path to growth and diversification for companies they have always been undertake voluntarily by firms either in the same business sector or even by banks on different sector for various strategic reasons forced by competitions.
Lately however the global financial market is experiencing forced mergers and acquisitions in responses to government micro- economic polices aimed at improving national competitiveness in a global economy where size and the economic of scale as well as the inspects associated with it have become vital strategic factors. The CBN governor in his 13-point position paper to the bankers has rightly pointed out the consolidation going in Malaysia Singapore and the United States among other nations of the world.
For most Nigerians mergers and acquisitions are still very strange business transactions and few understand them. Even for those who are versed on the subject there is a lot of disagreement regarding their applicability to the Nigerian banking situation and especially the time frame given for the process to be computed.
Hither to Nigerian banks have been faced with some fundamental problems, which lingered for years and as a matter of fact brought about the reform that is going on in the banking sector. The incidence of N25 billion minimum capital bases of banks came as a result of these problems facing the banking sector, which includes persistent liquidity poor assets quality and unaffordable operations.
For clarity the summary of the major problems of many Nigerian banks are as follows.
One of the recent developments in the banking sector which is of great concern to the monetary authorities is the significant dependence of many Nigeria banks on government deposits with the three tiers of government and parasstatls 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 ructions are in excess of 50 percent. The implications are that the resources base of such banks is weal and volatile rendering their operations highly vulnerable to swings in government revenue arising from the uncertainties of the international oil market.
The summary form the foregoing is that the Nigerian banking system faces enormous challenges which if not addressed urgently could snowball into a crisis in the near future.
Though the Nigerian banking system today is fragile and marginal the goal or aim of this more (the N25 billion new capital base for banks) is to raise a banking system that is part of the global change and which is strong completive and
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