RECAPITALIZATION AND BANK PERFORMANCES IN NIGERIA

BY VICTOR MAT N0:

THE DEPARTMENT OF BANKING AND FINANCE FACULTYOF MANAGEMENT SCIENCE UNIVERSITY OF BENIN, BENIN CITY FOR THE PARTIAL FULFILLMENT OF THE AWARD OF BACHELOR OF SCIENCE (BSc)

MAY, 2011

TABLE OF CONTENTS Title Page Dedication Certification Acknowledgement Abstract Table of Contents List of Tables CHAPTER ONE Introduction 1.0. Background of the Study 1.1. Statement of Problem 1.2. Research Questions 1.3. Objectives of the Study 1.4. Significance of the Study 1.5. Scope of the Study 1.6. Hypothesis 1.7. Definition of Terms 1.8. Organization of the Study CHAPTER TWO Literature Review 2.0. Introduction

2.1.

What is Recapitalization?

2.2. History Of Recapitalization 2.3. The position of the banking sector before recapitalization. The Agenda For Recapitalization 2.4. The Reason For Banks Recapitalization 2.5. Factors Affecting Bank Performance In Nigeria 2.6. Challenges Of Bank Recapitalization 2.7. The Implication Of Recapitalization On The Banking Industry Brand Implication Structure Implication 2.8. Impact Of Recapitalization 2.9. Prospect Of Banks After Recapitalization 2.10.Bank Recapitalization through Merger and Acquisition
2.11. 2.12. 2.13. 2.14.

2.3.1.

2.7.1.

2.7.2.

Pre of Bank Performance in Nigeria Post of Bank Performance in Nigeria Nigeria-Primary Capital Market Banking Sector And Capital Market

Chapter Three Research Methodology 3.0. Introduction 3.1. Research Design 3.2. Study Population

3.3. Sampling Techniques 3.4. Data Collection 3.5. Instrument for Data Collection 3.6. Validity and Reliability of Data 3.7. Administration Instrument 3.8. Plan for Analysis

CHAPTER ONE INTRODUCTION 1.0. BACKGROUND OF THE STUDY Banks are medium through which the countrys monetary policy is discharged. The achievement of the nations macroeconomic objectives cannot be facilitated in the absence of the banking system acting as a semi-permeable membrane. Government through the central bank, apart from rigid regulations guiding entry into the banking system through monetary policy, influences the operations of the banking system which is known to impact remarkably on the economy. Thus, the and monetary economic policy growth transmission mechanism

mechanism permeate through the banking sector. In the light of the role of banks in the financial landscape, it becomes imperative that technical and technological innovations meant for positive adjustment be introduced at any little porous signal of anomaly. Thus, the reforms in the banking sector are necessary to ensure the safety of depositors money, deepen the financial system for soundness and

efficiency of the system in order to engender growth of the economy. Kama (2006) observed that a feeble banking system is repressive, discretionary and discounts the intermediation process instability. thereby Reforms precipitating macroeconomic

therefore involve the articulation of robust policies that will deepen the financial system to enable banks play their roles most efficiently. This study therefore aims at investigating the effect of bank reforms on the performance of the banking system and the growth of the Nigerian economy. The recapitalization and exercise in the banking industry has necessitated the need for different organization to engage in corporate Recapitalization (mergers and acquisition). refers to the The concept trend of of recapitalization current

compelling all commercial banks to raise their capital base from 2billion to 25billion Naira by the Central Bank of Nigeria on or before 31st December 2005. This has sent some of these banks on the move to consider strategy. Banking reform have been an on going phenomenon around the world right from the 1980s, but it is more intensified in recent time because of the impact of Merger and Acquisition as a survival

globalization which is precipitated by continuous integration of the world market and economics. Banking reforms involve several elements that are unique to each country based on historical, economic and institutional imperative. In Nigeria, the reforms in banking sector preceded against the backdrop of banking crisis due to highly undercapitalization deposit taking banks; weakness in the regulatory and supervisory framework; weak management practices; and tolerance of deficiencies in the corporate governance behaviour of banks (Uchendu, 2005). Banking crisis usually starts with inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention, mechanisms may occur in the form of recapitalization (merger and acquisitions), recapitalization, use of bridge banks, establishment of assets management companies to assume control and recovery of bank assets, and outright liquidation of non redeemable banks. Irrespective of the cause, however, bank

recapitalization is implemented to strengthen the

banking

system,

embrace

globalization,

improve

healthy competition, exploit economics of scale, adopt advanced technologies, raise efficiency and improve ensure which profitability. that they Ultimately, are able to to the goal is to strengthen the intermediation role of banks and to perform their overall development role of enhancing economic growth, subsequently leads improved economic performance and societal welfare. The proponents of Bank recapitalization believe that increased size could potentially increase bank returns, through revenue and cost efficiency gains. Capitalization is an important component of reforms in the Nigeria banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities. Attaining capitalization requirements may be achieved through recapitalization of existing banks or raising additional funds through the capital market. The primary objective of the reforms is to guarantee an efficient and sound financial system. The reforms are designed to enable the banking system develop the required flexibility to support the economic development of the nation by efficiently performing its functions as the pivot of financial intermediation (Lemo, 2005). Thus, the reforms were to ensure a

diversified, strong and reliable banking industry where there is safety of depositors money and position banks to play active development roles in the Nigerian economy. In an attempt for banks to meet up with the new requirement, some Banks are exploring the option of inviting foreign investor to buy into Banks. Other are looking at the possibility of getting investors to shore up their capital, and some are looking at the capital market option, while others are considering mergers and acquisition. The effect of the merger is that merging banks in the country, under the current dispensation may lose their licenses and be issued new ones to reflect the new consolidated outfit. As we go on in the subsequent chapters, critical look shall be taken on the effect that this development is likely to or will have on the Nigeria banking industry and the economy at large. 1.1 STATEMENT OF PROBLEM Business organizations are recently seeing

Recapitalization (Mergers and Acquisition) as an alternative means of recapitalizing. The current trend of compelling all commercial banks to raise their capital base from 2billion to 25 billion naira by CBN on or before 31st December 2005 has sent some of

these banks on their heels to consider Merger and Acquisition as a survival strategy. In Nigeria today, a number of banks wanting to merge may run into difficulties, because most Nigeria banks are not quoted on the stock exchange and the assets of some are really bad. There exit a high degree of calculated risk taking to tap opportunities that come the way of business, but there is risk avoidance in Nigeria business and where risk is low, development is also low and industrial advancement becomes near static. Recapitalization could be a very expensive venture in terms of funds required to prosecute it successfully. Corrupt practices at public and private sector levels are another impediment. This need to be discouraged and incidence of corrupt practices should be severely punished because recapitalization deals require confidence and trust to promote consummation. Nigeria suffers anemically from lack of information which may unfortunately hinder significant leaps in business combinations. 1.2. RESEARCH QUESTION The question on this research work is

1. How

can

we

examine

the

impact

of

bank

performances on the Nigerian banks? 2. What are the challenges posed by the policy of bank recapitalization? 3. Are there benefits of recapitalization in the Nigerian banking performances?

What

are

the

prospects

of

banking

after

recapitalization? 1.3. OBJECTIVE OF THE STUDY The fundamental objectives of this study are
1. To examine the impact of bank performances on the

Nigerian banks.
2. To highlight possible challenges posed by the policy

of bank recapitalization.
3. Identify the benefits of the recapitalization in the

Nigerian banking performances.

4. Evaluate

the

prospect

of

banking

after

recapitalization. 1.4. SIGNIFICANCE OF THE STUDY The significance of this study is to add to the general body of knowledge, enlighten the general public on the recapitalization and banking performance of banks in Nigeria. And also explain the challenges of

bank performances. This research work would also establish the fact that recapitalization (merger and acquisition) is a veritable means for fostering banking growth. 1.5 SCOPES OF STUDY The scope of this study is to know the challenges of banking performances in Nigeria which is being carry out in Benin City, Edo State. There are many factors that act as constraint to the effort of the researcher in the course of writing this project. Most prominent of the factors are: a) TIME: The research work is a big task and as such requires time and energy, which was not on the researchers side. b) FINANCE: This is another limiting factor. Due to limited financial cannot resources procure available, all the the researcher needed

material is for this project. For instance, to get books from the library the researcher has to pay library, which the researcher does not have all the time. c) COST: The cost of transportation to and from First Bank of Nigeria Plc, Ekenhuan Edo State is very high for the researcher.

d)

SECRECY: Nigerians dislike activities that tend to probe them. They tend to avoid researcher because they feel their activities that are not meant for public consumption would be exposed through research work.

1.6. RESEARCH HYPOTHESES The following hypotheses will be formulated from the objectives and will be verified in the course of this research work and noted as null from the guide us in finding the solution to the problem that is induced in this research work.
a.

Null Hypotheses H0: The null hypothesis is accepted that if there is significant relationship between re-capitalization and liquidity ratio of banks in Nigeria

b. Alternative Hypotheses H1: the tested would be rejected if there is no significant relationship between re-capitalization and loan to deposit ratio? 1.7

DEFINITION OF TERMS Bank Re-capitalization: It is the act of supplying long-term funds of the owners of the bank to meet

the requirement of monetary authority. Osiegbu (2005).

Recapitalization: It is the reduction in the number of banks and other deposit taking institution with a simultaneous increase in the size and concentration of the recapitalization entities in the sector (BIS, 2001:2) Merger: It is the combination of two or more separate firms into a single firm Acquisition: It is where a company takes over the controlling shareholding interest of another company

1.8

ORGANIZATION OF THE STUDY The research work will be made up of five chapters as follows: CHAPTER ONE: This consists of the introduction, statement of the problem, purpose of the study, research questions, research hypothesis, significance of the study, limitations of the study, organization of the study and definition of terms. CHAPTER TWO: This section consists of reviews of relevant literature of renowned authors in the field of this study.

CHAPTER

THREE:

This

section

entails

the

methodology selected by the researcher of the study. It entails research design, sample procedure, data collection, operational measure of the variables, and data analysis technique. CHAPTER FOUR: This consists of a vivid presentation and analysis of data collected from relevant sources for the study. CHAPTER FIVE: This is the last section of the work and it consists of discussion, conclusion and recommendations made by the researcher.

REFERENCES

1. Ajayi , M. (2005) Banking Sector Reforms and Bank

Recapitalization: Conceptual framework, bullion, vol. 29, N0.2

2. Adegbaju,

A.A

and

Olokoyo,

F.O.

2008.

Recapitalization and Banks performance: A Economic and Business Review of Case Study of Nigerian Banks. Africal., 6(1): 1-16
3. Berger N. Allen. 1998. The Efficiency Effects of Bank

Mergers and Acquisition: A Preliminary GL Mergers and Acquisitions Interactive seminar, held at Eko Hotels & Suits, V.I., on une 24.
4. De Nicolo, Ginni, et al. (2003). Bank Recapitalization,

Internationalization and Conglomeration: Trends and Implications for Financial Risk. IMF Working Paper, 3 (158).
5. Kama U. 2006. Recent Reforms in Nigerian banking

Industry: Issues and Challenges. CBN ullion, 30 (3): 65-74.

6. Lemo,

T.

(2005).

Regulatory

Oversight

and

Stakeholder Protection. A paper Presented at the BGL Mergers and Acquisitions Interactive Seminar, held at Eko Hotels &Suites. V.I., on June 24.
7. Okpara G.C. 2009. A Synthesis of the Critical Factors

Affecting

Performance

of

the

Nigerian

Banking

System. European Journal of Economics, Finance and Administrative Sciences, 17: 34-44.

8. Okpara G.C. 2010b Relative Potency of Financial

Repression

and

Liberalization

on

Financial

Development and Economic Growth: An Empirical Survey. American Journal of Industrial and Scientific Research, 1 (3) Forthcoming.
9. Uchendu,

O.A. (20050.Banking Sector Reforms &

Bank Recapitalization: The Malaysian Experience. Bullion, 29 (2) 10. Soludo C.C. 2004. Consolidating the Nigerian Industry to Meet the Development Banking

Challenges of the 21st Century being an address Delivered to the Special meeting of the Banking Committee. Held on July 6, 2004at CBN Headquarters. Abuja.

CHAPTER TWO LITERATURE REVIEW 2.0. INTRODUCTION This research problem seems to be a recurrent public issue in the banking sectors in Nigeria and researchers in public sectors and private sectors as well. In order to obtain knowledge of previous research works, substantial numbers of articles, textbooks, journals related to the research problem were reviewed and presented under this chapter. The recent call for recapitalization in the banking industry has raised much argument among the bank regulators, promoters and depositors as if shoring up of bank's capital base is a new phenomenon in Nigeria. Historically, the failure of pioneer 1930's and 1940's brought about the enactment of banking ordinance of 1952. Banking ordinance of 1952 prescribed an operating licence and emphasized on minimum equity capital for all banks (Onoh, 2002: 321). Since then, rising of bank capital has become the hallmark response policy of the Nigerian monetary authorities.

Capitalization is an important component of reforms in the banking industry, owing to the fact that a bank with a strong capital base has the ability to absorb losses arising from non-performing liabilities (NPL). Attaining capitalization requirement is achieved through recapitalization, convergence as well as the capital market. Thus, banking reforms are primarily driven by the need to achieve the objectives of recapitalization, competition and convergence (Deccan Herald, 2004). Capitalization is an important component of reforms in the banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities (NPL). Attaining c a p i t a l i z a t i o n requirements is achieved through recapitalization, convergence as well as the capital market. Thus, banking reforms are primarily driven by the need to achieve the objectives of recapitalization, competition and convergence (Deccan Herald, 2004) in the financial architecture. The concept of recapitalization refers to the current trend of compelling all commercial banks to raise their capital base from 2billion to 25billion Naira by the Central Bank of Nigeria on or before 31st December 2005. This has sent some of these banks

on the move to consider Merger and Acquisition as a survival strategy. 2.1. RECAPITALIZATION Recapitalization is a change in any company's capital structure, such as an exchange of bonds for stock. Recapitalization is often undertaken with the aim of making the company's capital structure more stable, and sometimes to boost the company's stock price (for example, by issuing bonds and buying stock). Companies that do not want to become hostile takeover targets might undergo a recapitalization by taking on a very large amount of debt, and issuing substantial dividends to their shareholders (this makes the stock riskier, but the high dividends may still make them attractive to shareholders). Also, bankrupt process. 2.2. HISTORY OF RECAPITALIZATION Recapitalization of banks is not a new phenomenon. Right from 1958 after the first banking ordinance in 1952 the colonial government then raised the capital requirement for banks especially the foreign commercial bank from 200, 000 pounds to 400, 000 companies often undertake a recapitalization as a part of their reorganization

pounds. Ever since the issue of bank recapitalization have been a continuous occurrence not only in Nigeria but generally around the world especially as the world continues to witness increasing interdependence among national economies. Recapitalization in Nigeria comes with every

amendment to the existing banking laws. In 1969, capitalization for banks was N1.5m for foreign banks and N600, 000 for indigenous commercial banks. In 1979, when Merchant banks came on board the Nigerian banking scene the capital base was N2m. as from 1988, there had been further increase in the capital base, of particularly the coupled system with and the the liberalization financial

introduction of SAP in 1986. In February 1988, the capital base for commercial bank was increased to N5m while that of Merchant bank was pegged at N3m. In October the same year, it was jerked up to N10m for commercial bank and N6m for Merchant banks. In 1989, there was a further increase to N20m for commercial bank and N12m for Merchant bank. The Nigerian banking industry since its inception (in August 1891 which saw a branch of the African Banking Corporation open in Lagos) had evolved in 7 stages. The first stage (1891 1951) was a free era

banking, characterized by unregulated/unguided and Laisez faire banking practices and hence massive bank failures. The rest of the 6 stages fall under reform stages which started with the banking ordinance of 1952 that dominantly prevailed till 1959. Thus, the first phase of bank reforms in Nigeria (1952 1959) bordered on definition of banking business, prescription of minimum capital requirements for the expatriate and indigenous banks, maintenance of reserved funds, adequate liquidity and inculcating of examination, supervision and control habit into the banking management in Nigeria. Following the Paton Report in 1948, the first banking ordinance was enacted in 1952. The ordinance defined a bank as any company carrying on banking business or using bank or banking as part of the title under which it carries on business. In recognition of the fact that well-capitalized banks would strengthen the banking system for effective monetary management, the monetary authority increased the minimum paid-up capital of commercial and merchant banks in February 1990 to N50 and N40 million from N20 and N12million, respectively, Distressed banks whose capital fell below existing requirement were expected to comply by 31st March, 1997 or face liquidation. Twenty-six of such banks

comprising 13 each of commercial and merchant banks were liquidation in January, 1998. Minimum paid up capital of merchant and commercial banks was raised to uniform levels of N500 million with effect from 1st January, 1997, and December 1998, all existing banks were to recapitalize. The CBN brought into force the risk weighted measure of capital adequacy recommended by the Basle Committee of the Bank for International Settlements in 1990. Before then, capital adequacy was measured by the ratio of adjusted capital to total loans and advances outstanding. The CBN in 1990 introduced a set of prudential guidelines for licensed banks, which were complementary to both the capital adequacy requirement and Statement of Standard Accounting Practices. The prudential guidelines, among others, spelt out the critical to be employed by banks for classifying non-performing loans. In 2001, when the Universal banking was adopted in principle, the capital base was jerk up to N1billion for existing bank and N2billion for new banks. But in July 2004, the new governor of the CBN announced the need for banks to increase their capital base to N25billion all banks are expected to comply by December 2005. Many Developing Countries implemented financial reforms as part of broader market oriented economic

reforms since the late 1980s (Uboh, 2005). Globally, activities of banks reflect their unique role as the engine of growth in any economy. The importance of the financial sector of an economy which comprise banks and non-banks financial intermediaries, the regulatory widely framework and the in ever increasing financial products, in stimulating economic growth is recognized especially developmental economics, (Uboh, 2005) set the pace for the landslide of other works on the interdependent relationship between banks and economic growth. Stressing further that the pioneering work of Gurley and Shaw (1956) on the relationship between real and financial developments shows that financial intermediaries, monetization and capital formation determine the path and pace of economic development. The Nigerian system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. These changes have been influenced largely by changes posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards.

Prior to the recent reforms, the state of the Nigerian banking sector was very weak. According to Charles Soludo (2004), The Nigerian banking system today is fragile and marginal. The system faces enormous challenges which, if not addressed urgently, could snowball into a crisis in the near future. He identified the problems of the banks, especially those seen as feeble, as persistent illiquidity, unprofitable operations and having a poor assets base Banks recapitalization, which is at the core of most banking system reform programmes, occurs most of the time, independent of any banking c Banking sector reforms in Nigeria are driven by the need to deepen the financial sector and reposition the Nigeria economy for growth; to become integrated into the global financial structural and evolve a banking sector that is consistent with regional integration requirements and international best practices. It also aimed at addressing issues such as governance, risk management centre of and operational is inefficiencies, around firming the up the reforms

recapitalization. (Ajayi, 2005). The issue of recapitalization is a major reform objective; recapitalization literarily means increasing the amount of long term finances used in financing

the organization. Recapitalization entails increasing the debt stock of the company or issuing additional shares through existing shareholders or a combination of the two. It could even take the form of merger and acquisition or foreign direct investment. Whichever form it takes the end result is that the long term capital stock of the organization is increased substantially to sustain the current economy trend in the global world. 2.3. THE POSITION OF THE BANKING SECTOR

BEFORE RECAPITALIZATION. There was existence of eighty-nine (89) banks

predominantly in the urban centres as at June 2004, Characterized by structural and operational weakness of low capital base. Dominance of a few banks insolvency, and illiquidity over dependence on public sector deposits, and foreign exchange, trading. Poor asset quality, weak co-operate governance, a system with low depositor confidence. Banks that could not effectively support the real sector of the economy at 24 percent of GDP compared to African average of 87 and 272 percent for developed countries. Furthermore the vision of recapitalization amongst others includes becoming Africa's financial centre and CBN as one of the best in the world. Within ten years,

Nigerian bank(s) should be among the top 50 0f the 100 banks in the world. Facilitate evolution of a strong of a save and strong banking system. Improve transparency and accountability in the sector. Drive down the cost structure of banks and make them more competitive and development oriented. A new banking system that depositors can trust and investors can rely upon to usher in a new economy. 2.3.1. THE AGENDA FOR RECAPITALIZATION

Recapitalization of banks to 25 billion naira share holders fund by December 31 2005.

o o

Zero tolerance on misreporting and infarctions. Stricter enforcement of corporate governance principles. Policy framework on Risk Management systems. Strengthening banks. risk management systems in

o o

o o o

Risk based supervision. Payment system Reforms. Closer collaboration with the Economic and Financial Crimes Commission (EFCC) in the establishment of the Financial Intelligence Unit (FIU) and enforcement of anti money laundering measures.

Some element of reform, to a strengthened, Universal, bank.

2.4. THE REASON FOR BANKS RECAPITALIZATION The inability of the Nigeria banking system to voluntarily embark on recapitalization in line with global trend has necessitated the need to consider the adoption of appropriate legal and supervisory framework as well as a comprehensive incentive package to facilitate to recapitalization in the banking industry, both as a crisis resolution option and to promote soundness, stability and efficiency of the system by the apex regulatory body of the banks in Nigeria (Soludo, 2004:4). The major objective of the banking system is to ensure price stability and facilitate rapid economic development. Regrettably, these objectives have remained largely unattained in Nigeria as a result of some deficiencies. These include:

Technological drive: A bank desirous of enhancing its operations but constrained by its inability to easily access the needed technology may be driven into merging with another which has the technological advantage over it

Desire for growth: A merger arrangement may be entered into by a bank with a view to harnessing the other bank to achieve the desire growth. Poor rating of number of banks: though the banking system in Nigeria is, on the average, rated satisfactory, a detailed analysis of the condition of individual banks, as at December, 2004, showed that no bank was rated very sound only 10 were adjudged sound 51 satisfactory, 61 marginal and 10 unsound. (Imala; 2005 pp: 27). Low capital Base: The average capital base of Nigeria banks is US$10milion, which is very low compare to that of banks in other developing countries like Malaysia where the capital base of the smallest bank is US$526million. if the Similarly Nigeria the banking aggregate system at capitalization

311million naira (US$2.4million) is grossly low in relation to the size of the Nigeria economy and in relation to the capital base of US$688billion for a single banking group in France US$541billion for a bank in Germany. (CBN 2005: 17)

Stock Exchange Quotation: Business combination could be motivated by the desire for stock exchange listing. In this case, a bank unable to meet the requirement of the stock exchange, but desirous of

public quotation may integrate with another bank in order to realize its goal.

Increased Market Share: Recapitalization (Mergers and Acquisition) may be compelled by the desire banks that have similar line of product to enlarge its market share after the merger.

In addition to the above inadequacies, the Nigeria banking system suffers the following operational problems:

Weak corporate governance, evidence in inaccurate and non- compliance with regulatory requirement, declining ethics and gross insider abuse resulting in huge non-performing insider related credits. Over-dependence on public sector deposits and foreign exchange trading and neglect of small and medium scale private savers. (Imala; 2005:27).

2.5. FACTORS AFFECTING BANK PERFORMANCE IN NIGERIA A CBN/NDIC collaborative study of distress in Nigerian financial institution in 1995 revealed that factors such as bad loans and advances, fraudulent practices, under capitalization, rapid changes in government policies, economic bad management, political lack of adequate bad credit supervision, undue reliance on foreign exchange, depression, crisis,

policy, and undue interference from board members are factors responsible for bank and other financial institutions distress. Ogunleye (2003) grouped these factors into institutional, economic; and political factors; largely including within the supervisory control of measures. the owners The and institutional factors are endogenous factors which are management of the banks. The general institutional factors that led to the identified factors on the banking system can be discussed as insiders weak risk abuse, asset weak corporate and governance, management

inadequacy of capital. Economic and political factors as well as regulatory and supervisory measures will also be discussed in brief. a. Insiders Abuse The government owned bank suffered from

incessant/frequent changes in board membership and many appointments were made based on political affiliation Consequent rather upon than this, expertise board consideration. members saw

themselves as representative, of political parties in sharing the national cake emanating thereof and thus, ascribed their loyalty to the party members rather than the proper running of the bank itself. On

the side of the privately-owned banks, shareholders constituted a problem. According to Olufon (1992), the owner-managers regarded banking as an extension of their operations by appointing their relatives or friends to key positions instead of relying solely on professional managers. Thus, their appointees were mere loyalists who cared for the interest of their masters rather than the business itself. Shareholders quarrels and in boardroom favor of squabbles were common among the banks that management unnecessary attention squabbles. deviated In some banks where

harmony seemed to exist, another type of insider abuse took the form of the owners and directors misusing their privileged positions to obtain unsecured loans which in some cases were in excess of their banks statutory lending limits in violation of the provisions of the Banks and other Financial Institutions Act (BOFIA) of 1991 as amended. In addition, some of these owners and directors granted interest waivers on non performing insider-credits without obtaining the CBNs prior approval as required by BOFIA. Their conversion of bank resources to service their other business interest such as allocation of foreign exchange without naira cover to insiders, later crystallized as hard core debts. They

also indulge in compelling their banks to directly finance trading activities either through the banks or other proxy companies, the benefits of which did not accrue to the banks (Ogunleye, 2003). b. Weak Corporate Governance As a result of the insiders abuse of recruiting inexperienced and incompetent personnel to hold key positions in the bank, deterioration of management culture and weak internal control system instigated by the squabbles among the high rank management decision making team, and non compliance with laws and prudential standards, mismanagement seemed to play a major role in bank failure in Nigeria. Bank losses increased and management resorted to hiding the losses in order to buy time and remain in control. Many banks granted loans with no collateral or with little or no regard to the ability of the borrowers to repay the loans. In this regard, Ogunleye (2003) noted that the proportion of non performing loans in the distressed banks had during the period 19892000, been consistently high, reaching about 80 percent of their loan portfolio. This ratio has significantly exceeded the prudential maximum ratio of 20 percent.

c.

Weak Risk Asset Management and Inadequacy of Capital A number of banks had poor credit policies that loans are granted without securities and/or ability of the borrowers to pay back. Okpara (1997) noted that it is not uncommon to find securities being over valued and sometimes funds for are the disbursed precarious without financial securities. Odejimi (1992) noted that the major factors responsible condition of the banks were huge uncollectible loans and advances. In this observation, Ajani (1992) puts it that this maladministration of credit portfolio is one of the most lapses that can make a high-flyer manager lose ever thing overnight capital inadequacy has been reoccurent in the banking system that from time to time the CBN continues to articulate on the increase of the capital base of the banking system. For instance the recent N25 billion Naira recapitalization exercise was meant to beef up the ailing banks capital base.

c.

Economic Condition The banking industry being the nerve centre of the economy is invariably affected by economic and political environment/condition of the country. For instance the Structural Adjustment Programme (SAP)

introduced in 1986 led to a wide range of economic reforms that affected the banking system. Also political situation like the political crisis resulting from aborted attempt to return the country to democratic rule in 1993, led to massive withdrawal of funds that affected banks (especially) those around Lagos adversely. d. Regulatory and Supervisory Measures The regulatory and supervisory measures of the CBN/NDIC were unable to keep pace with the rapid changes in the banking industry. The CBN brief (1999) noted that the ability of the CBN to perform its regulatory role had in the past been affected by inadequate manpower both in terms of quality and quantity. NDIC (1995) in discussing the challenges of bank liquidation and deposit payoff, noted that closing a bank is a specialized job requiring services of technically skilled people in banking, accounting, legal, facility quantity support surveying, and also estate noted management, manpower information management and technology as well as that constituted a problem to its supervisory function.

2.6. CHALLENGES OF BANK RECAPITALIZATION

The challenges identified in this research work cut across the banks, their shareholders, bank employees and other stakeholders in the banking industry. It is an established fact that the route to improving efficiency in any industry is to foster competition among the operators. This is evident in two important growth sectors of the Nigeria economy- aviation and telecommunications (Adedipe 2005:37). over A the last one decade of bank major challenge

recapitalization is how to foster competition with fewer mega banks. Certainly, fewer cannot be more competitive. There is however, the other side to the argument, which considers the number and spread of bank branches. The fewer banks are likely to be pressured to expand further, seeking business to opportunities hitherto through aggressive branding unexplored

territories. (Moon, 1998). There is ample evidence that this is the direction that the emerging banks in Nigeria are likely to follow, going by the indications in their capital raising information memorandum. International evidence in bank recapitalization also confirms this except that it is more in the context of cross boarder acquisitions (Hughes, Lang, Master and Moon, 1998).

One of the supposed benefits of recapitalization (Bigger Banks) is indeed and efficiency challenge. The argument has been that bigger banks might not necessarily be filter or more efficient, since they have no incentive to improve efficiency within the limited competitive field. Observers of Nigerian banking have noted that the big banks (perhaps because of the increase in the number of customers) have slipped back to their erstwhile habits before the advent of the new generation banks. Available, empirical evidences from Hughes et al (1998). Another major challenge of recapitalization is

capacity building for risk management for both the regulators and operators. Both constituencies of the bank system need to enhance their risk management skills and indeed acquire new ones, covering the three plant of risk recognition, evaluation and monitoring (Adepide, 2005:41). 2.7. THE IMPLICATION OF RECAPITALIZATION ON THE BANKING INDUSTRY The directive by the Central Bank that, banks should raise their capital base to the tune of N25 billion several implications for both the banking industry and the Nigerian economy at large. These implications are as follows: with respect to the banking industry, the

implications

can

be

categorized

into

two

parts

namely; brand and structural implications. 2.7.1 BRAND IMPLICATION: With regards to branch implications, the new entities that will come from the dust of recapitalization will need to deal with brand-related issued such as:

There will be a change of name if two or more banks come together and decide not to adopt any of the participating bank name. The logos which were formally used by each of these banks will be dropped and another one adopted. There will also be the evolution of a new brand culture for the emerging banks after recapitalization.

The brand message of the consolidated banks will also be changed.

The place of information communication technology (ICT) in the bank will be changed, that is, banks software as the new banks will go for the best to meet up customers demand.

2.7.2. STRUCTURE IMPLICATION: The recapitalization of banks will leave in its wake, a number of structural issues which will have direct

impact on staff, customers and the entire banking sector. They include:

The reduction in the number of banks in the country The closure of many small banks, especially those in the rural areas with poor capital deposit. Increased competition due to better incentives and rendering of banks services.

2.8. IMPACT OF RECAPITALIZATION According to the report, the more time and money caused to be diverted from productive business activities to regulatory activity, the harder it is for businesses to compete, grow and create jobs and the harder it is for government to achieve its growth and job creation targets. The study showed further that small firms are hurt the most by regulatory burdens because time and money spent on regulatory activity would have been better spent doing business. The report further revealed that the consequences of regulatory burden weigh most heavily on the poor and unemployed because firms shift the cost burden elsewhere - to the consumer and the workforce by adopting some or all of the following measures to cushion the effect of regulation; lower wage; down staffing, lower quality; and higher prices. Others in

order to avoid detection go underground to operate in the informal sector. According to Soludo (2007), in terms of policy thrust therefore, the banking sector reform is expected to build and foster a competitive and healthy financial system to support development and to avoid systemic distress. It is further argued that deepening the banking sector in terms of asset volume and instrument diversity could lead to drastic reduction of fiscal deficit financing and freeing resources for lending to the private sector. The reforms will bring about a structured financing for cheep credit to the real sector and financial accommodations for small and rural credit schemes (Balogun, 2007). In his conclusion, Balogun (2007) pointed out that the major challenge to the Nigerian financial sector reforms is how to engender healthy competition in addition to enhancing investments. This demands the need to evolve an investment friendly interest rate regime that is supportive of the growth objective of the government. Adegbaju and Olokoye (2008) figured out that the return on Equity (ROE), which measures the rate of return to shareholders, was quite low falling sharply from 99.45 in 2000 to 41.63 in 2002 and further to 29.11 and 27.23 in 2003 and

2004 respectively. This shows that the shareholders receive very low returns in terms of dividend during this period. The return on assets (ROA) also fell from 3.96 in 2000 to 2.63 in 2002 showing that management of the banks has not been able to convert the banks assets into net earning in this period. The return on assets declined further in 2003 to 2.0 but then pick up again in 2004 to 2.58. Somoye (2008) noted that the asset size of an average bank within a year after recapitalization exercise had a growth rate of 534.27 percent, the level of capitalization of an average bank recorded a growth rate of 404 percent while the leverage ratio measured in terms equity to total asset also declined from 18.28 percent in 2004 to 14.52 percent in 2006 for an average bank coming closer to the CBN minimum level of 10 percent. He also noted that the post consolidated ratio is better in terms of its distribution among the banks compared with the pre recapitalization ratio where more than 70 percent of the equity and assets were concentrated in the largest five banks that constitute less than 5 percent of the existing banks. Thus, the intermediation activities of an average bank improved significantly in 2006.

However, the banking systems profit and asset utilization efficiencies have declined since the conclusion of the recapitalization. For instance, the industry return on equity declined from 35.28 per cent in 2004 to 11.12 per cent in 2006, while return on asset declined from 8.37 per cent to 2.09 per cent over the same period. The asset utilization ratio also declined; while an average bank was able to earn 34 kobo for every N1.0 asset in 2004, this declined to 11 kobo in 2006. Thus, while the recapitalization has improved the structure of the Nigerian banking industry in terms if asset size, deposit base and capital adequacy, the profit efficiency has not been impressive. The banks will need to become more efficient in terms of their ability to generate enough return to justify the increase in the equity base as well as the resources put at their disposals by their stakeholders. (Somoye, 2008). 2.9. PROSPECT RECAPITALIZATION

OF

BANKS

AFTER

The initial public offering by banks through the capital market when completed is likely to increase the level

of financial deepening as evidenced in the upsurge in the volume and value of trading in stock market.

The reform in the banking industry has been able to attract more foreign investment inflow, especially in the area of portfolio investment; this development if sustained will boost the level of economic activity especially toward non oil sector.

The recapitalization of banks is likely to attract a significant level of foreign banks entrance into Nigeria which will become a feature in the industry over time. This will bring about more of confidence the banking by the international community sector

thereby attracting more foreign investment into the country. As the level of financial intermediation increase, interest rate is likely to fall and increase lending to the real sector that will generate employment and booster growth. 2.10. BANK RECAPITALIZATION AND ACQUISITION THROUGH MERGER

Recapitalization is achieved through merger and acquisition. A merger is the combination of two or more separate firms into a single firm. The firm that results from the process could take any of the following identities: Acquirer target or new identity.

Acquisition on the other hand, takes place where a company takes over the controlling shareholding interest of another company. Usually, at the end of the process, there exist two separate entities or companies. The target company becomes either a division or a subsidiary of the acquiring company (Pandey, 1997:885). Acquisition digestion issues which will include loss of jobs, recapitalization of branch locations and tackling of inefficiencies and bureaucracies. While recapitalization involves merger and acquisition of banks, convergence involves the recapitalization of banking and other types of financial services like securities and insurance (FRBSF Economic letter, 1998). Anecdotal evidence indicates that the commonest form of mergers and acquisitions found in the financial services industry involves domestic firms competing in the same segment (for instance, bank to bank). The second most common type of merger and acquisition transactions involves domestic firms in different segments (e.g. bank-insurance firms). Crossborder merger and acquisition are less frequents particularly those involving firms in different industry segments (Roger Ferguson Jr., 2002).

2.11. PRE OF BANK PERFORMANCE IN NIGERIA Pre 2001 Recapitalization Performance Evaluation Ratio for Nigerian Banks. Pre-recapitalization
Net Interest Margin (NIM) % 1998 Yields on Earning Assets (YEA) 11.16 % Funding Cost (FC) % Return on Equity (ROE) % Return on Asset (ROA) % 17.55 86.08 4.52 1999 14.88 4.64 80.59 4.13 2000 9.12 4.62 99.45 3.96 2002 10.47 27.55 41.63 2.63 2003 7.71 20.32 29.11 2.00 2004 10.21 18.88 27.33 2.58

Source: NDIC annual report, various issues. The funding cost (FC) rose from 9.47 in 2000 to 13.05 in 2002, and later fall to 9.63 in 2003 and 9.66 in 2004. This is quite expected as with every major recapitalization there is an expected cost as all the banks will be all out to meet the deadline. However, this was tapered off in 2003 and 2004 and was consistent with the industry average even before the recapitalization. The Return on Equity (ROE), which measures the rate of return to shareholders, was quite low after the recapitalization falling sharply from 99.45 in 2000 to 41.63 in 2002 and further to 29.11 and 27.23 in 2003 and 2004 respectively. This shows that the shareholders receive very low returns in terms of

dividend

after

the

recapitalization.

This

is

not

surprising as most banks raise their fund through equity share which now increase the equity capital and the profit after tax have not improve substantially to compensate the shareholder who add additional fund to finance the bank recapitalization. 2.12. POST CAPITALIZATION OF BANK PERFORMANCES IN NIGERIA The table below shows that the total asset of all 89banks operating in Nigeria in 2004 prior to the recapitalization was N3, 753.28 (US$28.250billion) and rose to N 6400.78billion (US$49.88billion) indicating a growth rate of 70.54.16 percent within one year after geometrically to N267.482 billion (US$2.0856billion) within a year after recapitalization exercise, a growth rate of 534.27 percent. This was an impressive performance. The level of capitalization of an average bank prior to the exercise indicates an equity base (Net worth) of N 7.71 billion (US $0.0618 billion) rising to N 38.83 billion (US$0.31064billion) in 2006, indicating a growth rate of 404 percent. The leverage ratio measured in terms of equity to total asset also declined from 18.28 percent 2004 to 14.52 percent in 2006 for an average bank. This ratio compares

favourably with the CBN minimum level of 10 percent. The post recapitalization ratio where more than 70 percent of the equity and assets were concentrated in (the largest five banks) less than 5 percent of the existing banks. However, the intermediation activities of an average bank improved significantly by about 1,690 percent from an average deposit base of N 10.48 billion (US$0.08384) in 2004 to N 188.48billion (US$1.50784) in 2006

Macroeconom ic Indicator Average Lending (Nm) Average Assets (Nm) Average Deposit (Nm) Average Net worth (Nm) Return on Equity (%) Return on Assets (%) Assets Utilization (%) Total Bank Loan & Advance (N m) GDP (Current Basic Prices) (N m Real GDP (growth %) Inflation Rate

Nm 2004(a) 14,371.238 42,171.66 10,482.36 7,708.73 35.28 8.37 33.62 1,294,449. 50

Nm

2005 Nm

2006 %Change

Increase(+)

(b) 42,380.180 132,017.34 85,007.13 19,708.88 12.72 3.01 11.52 1,859,555.5 0

(c) 80,788.854 267,482.50 188,478.55 38,831.31 11.12 2.07 11.04 2,338,718.8 0 18,067,830. 00 7.17 10.6

Decrease(-)or Difference (D) +462.15% +534.27% +1690.05% +403.73% -24.16 (D) -6.30 (D) -22.56(D) +80.67

11, 411, 14,572,240. 070.00 00 6.5 10.00 7.06 11.6

+58.34% +0.67(D) +0.60 (D)

Exchange Rate 132.86 N/$ Min. Rate

Max. Rate Lending 20.42

129.00 17.8 19.50 13.0 442,008.9

128.3 18.30 28.70 10.0 525,482.0

+8.28(D) +3.43(D) +8.28(D) +2.80(D) +68.87%

Lending 18.91

MRR/MPR Credit to Private

12.80 the 311,646.8

Sector(N m) Bank Market 662,712. Capitalization (N m)

Bank Capitalization/NS E (%) Capitalization

1,212, 218.545 41.880

2,142,745.7 33 41.84

+233.82%

600 34.41

+7.43(D)

Total Cap. market (total) Bank

Market 1,925,937.5 NSE 30 Cap. Mkt 5.80 mkt 5.7 to 26.6 Sector

2,900,06.072

5,120,943.22 0

+165.89%

8.32 11.8 30.8

11.86 28.34 27.82

+6.06(D) +1.22(D) +0.18(D)

Cap./GDP NSE cap./GDP Credit Private

growth rate (%) Credit to 2.73 Private sector/GDP Average loan/Deposit Ratio (%) Credit to 24.08 72.8

3.03

2.91

+0.18(D)

76.7

96.8

+24(D)

23.77

22.47

+1.6(D)

private Sector/Total loan (%) Loans Adv.

1,294, 449.5

1,859,555.5 0 4,515,116.6 7 2,036,089.9 591,738.7

2,338,718.8 6,400,783.9 1,826,275.6 0 953,001.20

80.67% +9.92% +9.92% +173.5%

Total Assets (N 3,753,277. m)

Total

8 Deposit 1,661,482. 1 348,387.6 (N Bank 32.89 2.73

Liabilities Capital +Reserves m) Comm.

30.98 3.03

35.43 2.91

+2.54(D) +0.18(D)

Asset/GDP (%) Non-financial Private Bank Credit/GDP (%) Sector

Source: Various audited Account of Recapitalized banks as at 2006 financial Year; Central Bank of Nigeria Statistical Bulletin 2005 Central Bank of Nigeria Annual Reports and Account 2006 The their profit gross efficiency/asset earnings from utilization their pre has not been impressive. Although the banks have been able to double recapitalization performances level, their profit and asset utilization efficiencies have declined since the conclusion of the recapitalization. For instance, the industry return on equity from 35.38 percent in 2004 to 11.12 percent in 2006, while return on asset declined from 8.37 percent to 2.09 percent

over the same period. The asset utilization ratio also declined, while an average bank was able to earn 34 kobo for every N1.0 asset in 2004, this declined to 11 kobo in 2006. Thus, while recapitalization has improved the structure of the Nigerian banking industry in terms of asset size, deposit base and capital adequacy, the profit efficiency has not been impressive. The banks will need to become more efficient in terms of their ability to generate enough return to justify the increase in the equity base as well as the resources put at their disposals by their stakeholders. The lending capacity of the banks improved significantly as result of the recapitalization. As at 2004, an average bank could only lend about N14, 371 billion. Whereas, the capitalization strengthen the bank where a typical bank in Nigeria in 2006 could lend an average of N80.788 billion. This represents a growth rate of 462.13 percent growth from the table above showing the post-recapitalization. 2.13. NIGERIA-PRIMARY CAPITAL MARKET

The Nigerian capital market consists of two broad categories. These are the primary capital market and the secondary capital market. The primary capital market category consists of securities which are most freshly created. That is to

say, that these are any securities that have not yet been traded, bought, or sold. Securities that have been traded, bought, or sold are categorized under the secondary market. Primary capital market securities may be issued in several ways. Some of these include issuance of rights, sales offers, subscription offerings and private placements. Several regulatory bodies which participate in the Nigerian capital market are The S.E.C. (Securities and Exchange Commission), the Federal Ministry of Finance, the Central Bank of Nigeria, and the Nigerian Stock Exchange. The Securities and Exchange Commission strives to protect investors in the market as well as well as to make advancements In toward the socio-economic Securities and improvement. addition,

Exchange Commission is involved in the primary market in that it can manage the amount and timing of issuances. The Central Bank of Nigeria has goals and objectives such as to issue currency (known as the Naira and Kobo), financially advise and act as a sort of banker for the government, as well as cheque clearing, and

lending of last resort for other banks and financial institutions, managing accounts and debts of the entire country. In addition to all of this, the Central Bank of Nigeria takes actions to keep the economy. In recent times it has been insinuated that the Nigerian capital market was unstable and might crash, however, recently market analysts have shown to believe otherwise. It was discussed that despite occasional acute dips in the market, it always manages to recover because these are not large depressions of the overall market, which would definitively imply a crash. The Nigerian capital market can be used to generate long-term funds by hiring a broker or issuance house. Professionals such as these are dedicated to improving the performance of companies Each country has its own way of controlling its financial and capital markets. The more developed countries are more proficient in their techniques and therefore function at a higher, more advanced and complex level. The smaller, less-developed countries usually dont quite have the tools and/or power needed to compete with the larger markets, resulting in a struggle to stay afloat.

The Nigerian capital market is comprised of two main sections, the primary market and the secondary market. New securities are issued in the primary market. In the secondary market, the exchange of existing securities takes place once they have initially been issued in the primary market, either privately or publicly. Since 1993s government deregulation in Nigeria, In comparison to more developed countries, the Nigerian Stock Exchange is dragging along behind. It has a trivial 183 companies listed on it, where London Stock Exchange has over 5,000 companies, and Indian Stock Exchange has about 4,300. Although the Nigerian Stock Exchange is newer in existence than the others, it still has a lot of catching up to do. This simply clarifies the need for fast growth in the market. It is said that the secondary market is more advantageous to enter into, though. This doesnt say much as far as the primary market goes. But, it is a more ideal market for the public to invest, as opposed to the primary market. The secondary market is generally utilized more by investors and spectators. It is not necessarily Nigerias fault that it is so far behind, however. Companies are finding that there is

a lack of exposure in the market, where it is difficult to get their name out. This is just one problem this market needs to focus in on. This is partially the governments doing. There are potential dangers in the market such as funds that are being raised for unnecessary needs, in the long run causing economic development to suffer, and mere unproductiveness and wasted resources and time in the short run. This market is lacking in depth and the government is at the root of the problem. It is not allowing freedom in the pricing of securities, and is maintaining strong control over productive innovations within the secondary market and the entire financial system. The country needs some help, such as a microfinance bank to come about in the capital market of Nigeria, which could be possible if small stock broking firms tended to the lower end of the market. Since 1993s government deregulation in Nigeria where limited foreign involvement in the market was enforced, the countrys capital market has expanded, even though there are still many areas the need attention and expansion. The growth of the secondary market has unfortunately slowed down since then. The stock market in Nigeria has never had a problem with raising funds to support the government. The

secondary market has suffered the consequences of a government with too much power. 2.14. BANKNING SECTOR AND CAPITAL MARKET The market capitalization of quoted banks was 34.41 percent of total market capitalization of the Nigerian Stock Exchange (NSE) in 2004, but rose significantly to 41.80 percent in 2005 and renamed at 41.84percent by 2006. The NSE market capitalization grew by 160.70 percent between 2004 and 2006, whereas, the banking sector market capitalization grew by 233.33 percent over the same period. In fact, about 46.32 percent of the total growth in market capitalization came from the growth in banking sector market capitalization. This, form the capital market perspective, indicates that the banking sector has made a significant combination, and it has further improved the value and liquidity of the Nigerian Capital market.

CHAPTER THREE RESEARCH METHODOLOGY 3.0. INTRODUCTION

The research procedure, instrument and methodology employed in this research are discussed in this chapter. The methodology of any research work is an essential instrument for ensuring that the finding, analysis and conclusion have a systematic correlation with other areas of the research. It is a discussion or outline of the specific procedures that are followed in the sample, data collection techniques and methods of data analysis. This study is a descriptive survey. The study was conducted instrument in the in for The Edo the State study environs. was was The

used

structured captioned

questionnaires. Recapitalization

instrument and Bank

Performance

questionnaire designed by the researcher. 3.1. RESEARCH DESIGN The basic research design employed are descriptive and statistical type, whereby using Chi-square. The main objectives of the research studies are to ascertain the current status of what is being studied.

It is the frame work for a study that is used as a guide in collecting and analyzing data. This research will make use of the descriptive research design while investigating the research topic Recapitalization and Bank of Performance. Also it is refer to a set of instruction for making something which leaves the details to be worked out. According to Okwandu (2004) design is a term used to describe a number of decision, which need to be taken regarding the collection of data before ever the data are collected. The choice of a research approach is informed by the objective of the research which is concerned with the study of the research population comprises all the data collected from respondent in banks, non-

governmental offices for in formations but because of the huge cost and time involved, a sample of the population is used. 3.2. STUDY POPULATION The term population generally refers to a collection of people, objects or events with a common identity. Research population is the theoretical specified aggregation of survey elements. A population is the aggregation of all cases that conform to some

designated set of pacifications. One may similarly define population as consisting of all households in a given community, all the registered voters in a particular precinct, all the books in a library. A population may be a group of people, houses, records, and so on. The specific nature of the population depends on the research problem. If one is studying voting behavior in a presidential election, the population is all those registered to vote. On the other hand, if one is investigating the consumer behavior in a particular city, the population might be all the households in that city. Going by these definitions, a population does not refer to just a collection of people only, but a group of elements, events and issues that are of interest to a researcher. Therefore the population of this study consisted of the selected banks in Benin city comprises of 100 (one hundred) of the population which is use for the analysis. 3.3. SAMPLING TECHNIQUES Judgments sampling techniques is used to draw the sample for this research. Judgment sampling is one in which the population members are drawn in the basis of the judgment as to which members will constitute a genuine representative sample. It is

obvious that if a sample is representative of a population, important conclusion about the population can often be inferred from the analysis. The choice of the public services used for this research were based on the type of service which are primary important to the society. 3.4. DATA COLLECTION The data for the study will be collected through survey. Survey is the chosen method to collect data because its function is to generalize results from a sample to a larger population. The primary purpose and advantage of surveys is generalization of the results. Usually, surveys are interested in gathering data from many than in obtaining intensive, detailed information from a few individuals; therefore, it is seldom for individuals. Consequently, in designing a survey research study, one has to take into consideration the sample and the sampling procedure: the sample size should be adequate to allow generalization of the results, and the sampling procedure should also be such that small sub-groups within the population (such as landless farmers) are properly represented in the sample. This is because errors in sampling procedures a survey to consist of one or very few

may not justify generalization of the results, thus lowering the value of the survey. 3.5. INSTRUMENT FOR DATA COLLECTION There are three major instruments use for collecting data: questionnaires, telephone, and e-mails. The issue of telephone is ruled out due to poor network sometimes in the country. Mail techniques was used for this research because it was considered to be cheaper, more convenient method of obtaining information from a large number of subjects over a wide geography area and also the respondents can remain anonymous which encourage them to respond more freely and openly on sensitive matters. By this method the respondents were given enough time to formulate their answer. The only serious disadvantage is the low responses rate associated with it. This advantage of mail questionnaire was somehow taken care of by the personal interview method. Out of the one hundred and twenty questionnaires sent out to different only 84 respondents were around the and country/offices administered

returned good enough for the analysis. In the design of the questionnaires format, the tight schedule of the officers was taken into considerations.

3.6. VALIDITY AND RELIABILITY OF DATA The validity of the research instrument was established by content validity. This kind of test is on the basis that the items of the test are representative of the universe of items deemed by experts in subject matter. The first draft of the questionnaire used in this study was subjected to expert analysis. In this case, the input, criticisms and reconstruction of the questions by my supervisor and other senior academics during the presentation was taken seriously. Through this test, the content validity of the questionnaire was claimed. On the other hand, the reliability test of the research instrument was established in a test pilot study. The statistical tool which was used to test the reliability of the questionnaire is the correlation coefficient which was adjusted by the Chi-square (X2) method. The method adopted was by giving the same questionnaire twice to the respondents. Each of the two sets of items was separately treated after which it was correlated as measure of reliability of the questionnaire 70% was used as the correlation coefficient.

3.7. ADMINISTRATION INSTRUMENT The questionnaire and in-depth interview a schedule was the research instrument for this study. This questionnaire schedules were used in the study, namely form of questionnaire and the in-depth form of questionnaire. Both forms were designed to obtain information about the Recapitalization and Bank Performance of Edo State in Nigeria. The closed form of survey questionnaire was divided into two sections; section A and B section A contained information as regards the personal status, educational qualifications, occupation, age and In the case of the in-depth interview the questionnaire was divided into sections, A and B section A contained the personal characteristics of the respondents exactly as they appeared on the survey questionnaire. The section B of in-depth interview contained set of items related to the activities of the community in the case study. The questions were structured in the open-ended form. The respondents were left to answer the questions freely and fully in their own words and frame of mind. Finally, the X-test statistics at five percent was used to determine the overall significance of the study. 3.8. PLAN FOR ANALYSIS

The data generated for this study through the questionnaire statistical was statistically utilized analyzed. the The simple techniques were

percentage and the chi-square (x2), The data generated through the questionnaire for this study were presented in tabular forms. The simple percentage was utilized in the description of the responses elicited while the chi-square was used in the study. The simple percentage was utilized to determine the distribution of respondents in terms of personal profile and responses to the research variables on the subject matter of the study. The formula for the computation of the simple percentage % = Pc x 100 N 1 Where% = PC = N = 100 = n
2 X2 = (O - E) E 1-!

Arithmetic Sign of Simple percentage

Percentage Compliance Total number of respondent (Cases) Common based of simple percentage

The Chi-square formula is given thus;

Where, O E = = Observed frequencies Expected frequencies

Sigma sign meaning add up