AN ASSESSMENT
OF RE-POSITIONING THROUGH RECAPITALIZATION OF BANKING SECTORS IN NIGERIA
(A CASE
STUDY OF HALLMARK BANK PLC )
ABSTRACT
This thesis
examines the current transformation on the banking sector in Nigeria. It
attempts to examine how the banks, particularly Hallmark bank, plc can
reposition itself through recapitalization for competitive advantage. Although
the bulk of the literature on the subject matter are on the banking sectors
reforms, including the various techniques and strategies in meeting with the 18
months recapitalization deadline the finding makes, conjunctive on the post
recapitalization challenges and realities.
The study
covers selected commercial banks within Kaduna Metropolis and the management of
Hallmark bank Plc Abuja. Within these groups the designed questionnaire were
administered for the purpose of data collection.
A total of
24 questions were asked on the questionnaire for the bank managers and another
set of 14 questions for the bank customers within the areas covered by this
survey.
The study
conclusively found that recapitalization is a great milestone in the Nigeria
banking sector that is designed to strengthen and revitalize the fragile
banking sector in Nigeria. In addition, the expected gains of the reform are
enormous for those banks that survive the current reform exercise. On the part
of the consuming public, a significant proportion of them have little of no
understanding of the need for the reform.
An
important recommendation is for the CBN and other stakeholders to create public
awareness on the changes opportunities and future of he banks in the past
recapitalization era.
TABLE OF CONTENTS
Title – – – – – – – – – – – i
Declaration – – – – – – – – – – ii
Certification – – – – – – – – – – iii
Dedication – – – – – – – – – – iv
Acknowledgment – – – – – – – – – v
Abstract – – – – – – – – – – – vii
Table of content – – – – – – – – – ix
CHAPTER
ONE – Introduction
1.0 Background
of the study
1.1 Historical
Background of Hall Mark bank PLC
1.2 Statement
of the Problem
1.3 Objectives
of the study
1.4 Scope of
the study
1.5 Significance
of the Study
1.6 Research
Question
1.7 Limitation
of the study
1.8 Definition of Terms
References
CHAPTER
TWO- Literature Review
2.0 Introduction
2.1 The Rationale behind
Recapitalization of Commercials
Banks in Nigeria
2.2 Genesis of Banks failure
2.3 Effects of Distress Bank on
the Economy
2.4 The objectives of The banking
Reforms
2.5 Mergers and acquisitions as strategies to meet up with Recapitalization
deadline
2.6 Rationale for Mergers
2.7 Valuation of Merger Candidates
2.8 Merger Tactics
References
CHAPTER THREE – Research Methodology
3.0 Introduction
3.1 Research methodology Employed
3.2 Justification of Approach Used
3.3 Research Instrument Used
3.4 Research Population and Sampling size
3.5 Sampling Procedures Employed
3.6 Justification For Sampling Procedures Employed
3.7 Statistical Techniques Used to analyzing Data
CHAPTER FOUR – Presentation and Analysis of Data
4.0 Introduction
4.1 Data Presentations and Analysis
CHAPTER FIVE – Summary, Conclusion &
Recommendations
5.0 Introduction
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
Bibliography
Appendix
I
Appendix
II
CHAPTER ONE
INTRODUCTION
1.0 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.
1.1 HISTORICAL BACKGROUND OF HALLMARK BANK
NIGERIA PLC.
The
bank was incorporated on 29th October 1990 as Hallmark Bank Nigeria
Limited. It was granted license to carry on commenced business on 22nd
January 1991. It commenced business on 2nd April 1991. It changed
its name to Hallmark Bank Limited on 24th April 1991. It became
Hallmark Ban Plc on 24th September 1996. The principal activity of
the bank through out the years continued to be provision of commercial banking
services such services include granting of loans and advances, project
financing, trade finance activity and money market operations.
With
32 branches to date, 9 in Lagos, 3 in Oweri, two each in Aba, Port Harcourt and
Abuja, One in Onitsha, Ummahia, Bonny, Awka, Enugu, Warri, Jos, Abakaliki, Uyo,
Kano, Maiduguri, Benin, Otigbo and Kaduna, Hallmark Bank is expanding in line
with growth strategy to position it closer to its customers and to harness the
penitential of the Nigerian Market. All the bank’s branches are interconnected
via Hallmark global Banking System (HGBS) to enable you access your account
from any of the bank branches.
In
this era of globalization, when technology offers banks enormous leverage in
capturing niche markets. Hallmark Bank cannot but play in the top most segment
of the Information Technology race. The deployment of the latest Information
technology from the IBM stable The IBM risc model P 670 serve as a further
demonstration of their desire to deliver to customers, financial services at
the speed compatible with the best any where in the world.
Hallmark
Bank is the second financial Institution in Nigeria to have acquired this
Infrastructure. To Safeguard the equipment and direct Internet background has
been installed as a first step towards launching full internet banking service
later this year.
The
Introduction Technology model of bank is capable of linking over 150 branches
given its high reliability rating already, all their 32 branches in operation
have been inter-connected.
With
the issuance at the shares authorized by shareholders at the preceding Annual
General Meeting, the banks paid-up capital rose to N1.0 billion in accordance
with regulatory requirement. The banks authorize share capital also increased
form N2.0 billion to N3.0 billion consisting of 6 billion ordinary shares of 50
kobo each in accordance with members’ approval at the same meeting. Following
the same subsequent successful hybrid offer subscription and right issue of
N1.3 billion and N700 million shares respectively undertaken by the bank. It’s
paid up capital rose significantly to N1.87 billion. However, this figure could
not be reflected in the present accounts a the proceeds were received after 31st
March 2003/2004 the share holders fund of the bank rose to N8.9 b. with assets
base of N48. billion at the end of 2004/2005 financial years the share holders funds risen to over n10
billion. The bank at its 10th Anniversary celebration set a vision
2011 targeting share holders fund of 50 billion and asset base of N500 billion.
In response to the Central bank
recapitalization call the board of the bank has authorize increase of the
authorize share capital of the bank to N25 billion. With this level of
capitalization and strategic plans put in place by the bank it now stands in
goods state to pursue its future expansion and consolidation program.
The
proceeds of the bank shall be deployed to finance expansion of branch network,
improvement in information technology, provide additional working capital and
prosecute investment in Universal banking, with this level of capitalization,
the bank stands in good stead to purse our expansion programmes in the next few
years.
The
table below provides bridge. Information on the banks performance over the last
five years.
Profit
& Loss A/c
2004
N 000
2003
N 000
2002
N 000
2001
N 000
2000
N 000
Gross Earning
7405870
7182372
4669317
2876688
Profit before taxation
1457668
1564176
1253632
811758
Dividends
–
105000
350,000
210,000
Earning per share of No 50l each
50.3k
80.9k
73.7k
49.4k
Dividends per share of No each
Nil
7.5k
25k
15.0k
1.2
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.
1.3 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.
1.4 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.
1.5
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.
1.6 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?
1.7 LIMITATION OF THE STUDY
a.
UNCOOPERATIVE ATTITUDE OF
RESPONDENTS.
The
bank used as case study initially did not cooperate with the researcher due to
the fact that in the current competitive environment, an organization regards
any persons who comes for an enquiry as a spy on the activities who is used by
their competitors to undo them in the market place. This explains the
uncooperative attitude of the bank that was visited initially.
b.
TIME FACTOR
This
project was written when academic activities when at the highest peak
particularly for us the final year students. Therefore, little time was set
aside for this important task.