THE IMPLICATION OF RECAPITALIZATION POLICY ON
THE PERFORMANCE OF UNITED BANK FOR AFRICA
[UBA]
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, hug 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 take by Board of Directors. This is a fragile
banking system which is waiting to explode from the contagion effect 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 case 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 though recapitalization of N25 billion for each bank intends
among other things to take proactive steps to prevent an imminent systematic
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
investment 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 steps 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 Malaysian bank with $526 million. This is an
important indices for an understanding of the unique, nature of the Nigeria
banking system among developing economies.
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. However, it is also the intention of this study to outline the
various repositioning strategies of United Bank for Africa
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 Statement
of the Problem
The rising incidence of bankruptcy and distress
syndrome in the Nigerian baking system caused by poor capital base, lack of
management expertise, bad debt syndrome corrupt practices and fraud among other
have created serious concern to depositors, investors and the rational economy.
The need to address this issue has 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 merge into 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.
United Bank for Africa 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 United Bank for Africa Plc, Abuja designed to achieve
competitive advantage. It is hope that the finding of this study would provide
an important blue-print for effective modern marketing of banking services in Nigeria.
1.2 Objective
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 United
Bank for Africa, Kaduna.
The study is specifically design to achieve the following objectives:
a)
To present the
various shortcomings of the current banking system, of Nigeria
b)
To provide the
rational 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
recommendation and solutions identified by the study
1.3 Research
Questions
This research study intends to address the
following research questions:
a)
Why should the
minimum capital base for commercial banks in Nigeria be raised to N25 billion?
b)
Can recapitalization
of the banks result in the desired positive change for the Nigerian economy?
c)
What are the
implications of the reform on the existing job situation in the country include
the job security in the banking industry?
d)
What will happen to
customer accounts (loans and deposits) for banks that cannot meet the
requirement?
e)
If a bank acquired
or goes into mergers in the existing consolidation process, what does this
imply for bank’s existing customer that do not fall within its redefined target
market?
f)
Beyond the N25
billion are there further increases in the capital requirement for banks in
future?
1.4 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 analyst and other interested in the genuine development of
the Nigerian banking system through recapitalization.
First and foremost, the management of United Bank
for Africa 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 recapitalization policy would by providing to
make it easier for the bank to discern area of threats as well as opportunities
in the years ahead.
Secondly, recapitalization being a new concept in
the baking 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 hope
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.
1.5 Scope
of the Study
This research study focuses on the marketing
activities of United Bank for Africa, Kaduna.
Though data collection might be centrally to be done through the head office in
Kaduna but the analysis and interpretation of
findings may cover all the state branches in Kaduna.
1.6 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 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 work was written when academic
activities was at the highest peak particularly for us the final year students.
Therefore, little time was set aside for this important task.
c)
Financial
Constraints: This project work was much
tasking as it was not easy to obtain materials, the cost involved in typing,
photocopying and binding as a student of this level.
d)
Lecturers are also
expected to lecture and at the same time supervise a good number of projects,
lecturing, which is the main task of every lecturer tend to limit the frequency
of project, supervision. Despite these constraints, the main objectives set for
this study has been fully achieved.
1.7 Definition
of Terms
The following terms and abbreviations used in this
study are explained as follows:
·
Syndrome:
A group concurrent symptoms of a
disease.
·
Management:
The art of getting things done through and with people in a formally organized
way. It is the aid of creating an environment in which people cooperate towards
the attainment of group objectives.
·
Service:
A service is an intangible offering or benefit that cannot be seen, felt,
heard, tasted or smelled before being purchased.
·
Fraud:
An act of deliberate deception with the intention of securing something
monetary gained by taking an unfair advantage over another person
·
Bank
Failure: This is where a bank becomes
insolvent or whose total property (assets) and intangible right (securities)
are insufficient to pay all its debts obligation
·
CBN:
Central Bank of Nigeria
·
NDIC:
Nigeria Deposit Insurance Corporation
·
Capital:
Paid-up capital and reserves unpaired by losses
·
Reserves:
Surplus resulting from revaluation in the course of consolidation
·
Paid-up-capital:
Ordinary shares plus non-redeemable preference shares