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BANKING SECTOR REFORMS
AND IT’S IMPLICATION ON THE NIGERIAN ECONOMY
CHAPTER ONE
INTRODUCTION
The importance of the banking sector in any economy derives
from its roles in financial intermediation, provision of an efficient payment system and facilitating the
implementation of monetary policies.
On Tuesday July 6, 2004, Professor Charles Soludo the
Governor of Central Bank of Nigeria at a special session of the bankers
committee in Abuja unveiled a 13 point reform agenda to banks chiefs which
included an upward review of banks capital base from N2billion to N25 billion
which is the first phase of the banking reforms. The decision according to him
to raise the capital base of banks was with the aim of strengthening and
consolidating the banking system. Besides strengthening the Nigerian banks with
the new capital, Soludo also explained that it is intended to sterm the banks
distress that has been a problem to the banking sector. According to him in his
paper presented at the special session of the bankers committee in Abuja,
The inability of Nigerian Banking System to voluntarily
embark on consolidation in time with the global trend has necessitated the need
to consider the adoption of appropriate legal and supervisory frameworks as
well as comprehensive incentive package to facilitate mergers and acquisition
in the country as well as crisis resolution option and to promote the
soundness, stability and enhanced efficiency of the system. Soludo (2004:4).
The Nigerian banking sector reforms remained a reference
point for the positive development in the Nigeria economy, African region and
the world. Presently, the new banking environment created by the reforms has
made possible the delisting of Nigeria from the Financial Action Tax Forces
(FATF) register of countries that are in
breach of the global anti-money laundering and anti-corruption code.
1.1 BACKGROUND OF
THE STUDY
In boosting the effectiveness of the banking industry,
Oceanic Bank International Plc plays a vital role by mobilizing funds from the
surplus economic units to the deficit units for the purpose of stimulating the
economy while making profit to satisfy different interest.
Oceanic Bank International Plc was incorporated on March 26,
1990 as a private limited liability company with 100% equity ownership by
Nigerian citizens and was licensed on April 10, 1990 to carry on commercial
banking and it commensed business on June 12, 1990 at the water front plaza 270
Victoria Island, Lagos as its head
office. Inspite of the numerous bank distress observed within the Nigerian
Banking sector, the bank has had a relatively good reputation. Oceanic Bank
International Plc is one of the largest in Nigeria and has its location in
several parts of Nigeria. Her financial year runs from October 1 to September 30 of the subsequent
year. The bank has had an impressive performance over the years for the quality
of its customers portfolio which includes corporate organizations and high
net-worth individuals. Following the Central Bank of Nigeria (CBN) reform
effort on banks to increase their share capital from N2 billion to N25 billion
before 31st December 2005, the bank was among the first that met the
requirement. The Oceanic Bank International Plc was listed on the Nigerian Stock Exchange on June 25,
2004 and at present it’s authorized capital is N32 billion.
1.2 STATEMENT OF THE
PROBLEM
The Nigerian Banking System has undergone rapid changes over
the years interms of the number of institutions, ownership structure and as
well as operations. These changes have been influenced by challenges posed by
deregulation of the financial sector, globalization of operations,
technological innovations and adoption of supervisory and prudential
requirements that conforms to international standards.
The rate of bank failures in Nigeria has constituted a problem
because it has risen sharply in recent years. Confidence and credibility were
gradually and steadily being eroded and the picture had never been more gloomy
and the impending consequences more alarming. The fundamental problems of the
unsound banks have been identified to include persistent illiquidity, poor
assets quality and unprofitable operations including weak capital base.
This research will therefore evaluate empirically the
possible relationship between the banking sector reforms interms of capital
adequacy and customers’ patronage as
reflected in deposit liability using the financial statement of Oceanic Bank
International Plc, between 1999 – 2006.
1.3 OBJECTIVE OF THE
STUDY
To ascertain:
The impact of banking sector reforms in respect of capital
adequacy on customers patronage.
The rationale of banking sector reforms in Nigeria
The benefits of the banking sector reforms.
The problem faced by customers before the reforms.
STATEMENT OF HYPOTHESIS
As a guide for the purpose of understanding this work, the
hypothesis will be stated in the Null and Alternate form.
Ho: Null hypothesis
H1: Alternate
Hypothesis
Ho: There is no
direct relationship between Banking Sector reforms interms of capital adequacy
and customers’ patronage (Deposit liabilities).
H1: There is direct relationship between Banking sector
reforms interms of capital adequacy and customers patronage (Deposit
liabilities).
RESEARCH QUESTIONS
In order to facilitate the in-debt understanding of this
research a number of issues came into
consideration. In trying to solve them, the following questions will be brought
to focus for the purpose of the study.
Does banking sector reforms ensure capital adequacy?
Why should the capital base for banks be raised to N25
Billion
What positive change will the current reforms have on the
banking sector
Have the banking sector reforms improved customers
confidence?
1.6 SIGNIFICANCE OF
THE STUDY
The need of the stability of the banking sector in developing
the economy is a major concern by Nigerians. This research work signifies a
bold step towards showcasing the implication of the banking reforms to the
economy at large. Therefore, the study of this nature will provide critical but
useful information to the Nigerian economy the implications of banking reforms
and the issue of failed banks.
The study will further help in guiding other researchers
especially students undertaking similar research topic in ascertaining and
forming the basis of further research.
1.7 SCOPE AND
LIMITATION OF THE STUDY
Although this research project concerned the banking industry
reforms and it’s implications on the Nigerian economy, it will focus on the
Oceanic Bank International Plc, Uyo. As it is meant for examination purpose, as
such its scope will be restricted to about 65 pages. Moreso, very limited time
allowed, financial constraints and inability to gather useful informations from
relevant sources will also be a problem to the scope and coverage of this
study.
1.8 DEFINITION OF
TERMS
The following terms are operationally defined in order to
facilitate a comprehensive understanding of this research work and facilitate
easy reading.
BANK – This is an institution engaged in
banking
BANKING According to
BOFIA (1991), “Banking is the business of receiving deposits on current
account, savings account or other similar accounts or paying or collecting
cheque drawn by or paid in by customers, provision of finance or such other business as the CBN Governor
may by order published the gazette designated as banking business.
BANK CONSOLIDATION – This refers to the reduction in the
number of banks, other deposits taking institutions with a simultaneous
increase in size of capitalization of such institutions.
ACQUISTION – This is where one legal entity takes controlling
interest in the affairs of another legal entity.
RE-CAPITALIZATION – it is an increase of shareholder’s funds
through new issues and right issues.
ECONOMY – Is the relationship between production, trade and
the supply of money in a particular geographical area.
CAPITAL BASE – This refers to the paid-up capital and the
reserves unimpaired by losses.
PAID-UP CAPITAL – It
is the ordinary share plus the non-redeemable preference shares.
RESERVES – This includes all fund reserves except asset
revaluation surplus resulting from revaluation in the course of consolidation.
BANKING REFORMS: This means changes in the banking system in
terms of capital operation, information rendition and reporting etc.
CAPITAL: Accumulated wealth or money which is used in
business.
END NOTE
Soludo, Charles (2004), Consolidating the Nigerian Banking
Industry, CBN
Governor’s Address to the Banker’s Committee July 6, 2004.
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