THE IMPACT OF IMPROVED CAPITALIZATION ON NIGERIAN BANKS LENDING

THE IMPACT OF IMPROVED CAPITALIZATION ON NIGERIAN BANKS LENDING

ABSTRACT

The failure and weak capital base of the Nigeria banking sector questioned the effectiveness of the sector that is seen as one of the agent of financial stability and economic development in Nigeria. The CBN recent reform to consolidate the banking sector through drastic increase to N25 billion as minimum capitals base has led to a remarkable reduction in the number of banks, changed their mode of operation and their contribution to the economy. The Central Bank of Nigeria (CBN) have infused the total sum of N600 billion ($3.96 billion) into the Nigerian banking sector to recapitalized the banks that have been plagued with liquidity crisis and credit crunch caused by excessive lending profligacy and corruption. The recent audits of the Nigeria banks by the Central Banking Nigeria (CBN) have exposed the inefficiency of the banking sector which was poorly managed. Those audit revealed that five banks holding 30% of Nigeria deposit. Afribank, Finbank, Intercontinental bank, Oceanic Bank and Union Bank were on the brink of collapse to reckless lending. This research through literature review explores the effect of recapitalization on Bank lending in Nigeria on both banks and Nigeria economy. It also posits further that reforms of this nature are one of the ways to improve the banking sector for financial stability and sustainable development. Hence the research recommends that further bank reform be worked on so as to improve efficiency in the industry for the sake of economic development.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND O THE STUDY

Nigeria banking sector has experienced a boom-and-burst cycles in the past 20 – 25 years. After the implementation of the structural adjustment programme (SAP) in 1986 and de-regulation of the financial sector, new banks proliferated mainly driven by attractive arbitrage opportunities in the foreign exchange market (Heiko, 2007), but prior to the de-regulation period, financial intermediation never took off and even declined in the 1980s and 1990’s (Capirio and Klibiel).

The sector was highly oligopolistic with remarkable features of market concentration and leadership but noted that there are ten banks that control more than 50% of the aggregates assets of the bank banking sector, more than 51% of the aggregate deposites.

THE IMPACT OF IMPROVED CAPITALIZATION ON NIGERIAN BANKS LENDING