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.

TABLE OF CONTENTS

Title page i

Certification ii

Dedication iii

Acknowledgement iv

Abstract v

Table of contents vi

CHAPTER ONE

Introduction 1

1.1 Background o the study 1

1.2 Statement of problem 3

1.3 Objectives of study 4

1.4 Research question 4

1.5 Hypothesis 6

1.6 Scope of the study and limitation 6

1.7 Significance of study 7

CHAPTER TWO

Literature review 9

2.1 Introduction 9

2.2 Concept of bank capitalization 10

2.3 Evolution of banking in Nigeria 12

2.4 The role of banks in the Nigeria economy 18

2.5 Position of the banking sector before capitalization25

2.6 Objective of bank capitalization 27

2.7 Banks capitalization through merger and acquisition 30

2.8 Impact of capitalization on the banks sector 39

2.9 The effect of bank capitalization on the

Nigeria economy 42

CHAPTER THREE

2.0 Research methodology 47

2.1 Research design 47

2.2 Research instruments 47

2.3 Population of study 50

2.4 Determination of sample size 51

2.5 Sources of data 53

2.6 Administration of questionnaire and interviews 54

2.7 Method of data analysis 55

CHAPTER FOUR

4.1 Data presentation 57

4.2 Data analysis 57

4.3 The hypothesis testing 64

CHAPTER FIVE

Summary of findings, recommendation and conclusion 75

Introduction 75

5.1 Summary of finding 75

5.2 Recommendations 76

5.3 Conclusion 78

References 79

Appendix 81

Questionnaires 82

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 sector characterized by small scale banks with higher overheads, low capital base averaging less than $10 million, heavy reliance on the government patronage and less making. Nigeria banking sector was still characterized by a high degree of fragmentation and low level of financial intermediation up to 2004.

This research work is motivated by the need to look into the central bank (CB)’s recent reform (Capitalization) that employed certain measures to strengthen the Nigeria banking system by drastically increase the minimum capital requirement from N2 billion of N25 billion ($190 million US). Through review of relevant literatures, analysis of policy documents official report and economic information on the banking sector, it became evident that the capitalization of bank led to a remarkable reduction in the number of banks from 89 to 25 by merge, acquisition, initial public offer and other means. The research work concludes that bank capitalization has resulted in making bank more efficient and reliable and also, their intermediary potentials have also been revised.

1.2 STATEMENT OF PROBLEM

Recapitalization of the Nigeria banks which started in 2004, has been a great advantage to the Nigeria economy. Before that, there were many Nigeria banks that had weak capital bases. This resulted in frequent bank burst and the low capital requirements also meant that important men could and did not set up public banks which they ran with total disregard for the minority shareholders. Banks on their own could not carry their primary function of lending because of liquidity problem. This therefore put the economy in adverse economic and financial problem. Banks at this time were running at in increase lending rate between 25 – 27%, thereby making credit to the real sector difficult. Industry operators attributes this to high operating cost occasioned by decay infrastructure. The implication is that the prices of goods and services are on the rise with lower disposable income. Consequently producers are facing resistance from consumers who have cut down significantly on consumption. This development poses a serious problem to the bank lending as they need to grow their loan portfolio to be able to compete with emergency market peers.

1.3 OBJECTIVES OF STUDY

Bank capitalization will go a long way in enhancing economic growth in Nigeria and also in the banking and financial sector of the nation.

Hence, the fundamental objective of this study are:

- To asses the implication of capitalization on the banking industry

- To examine the impact of capitalization on Nigeria banks

- To asses the state of Nigeria banks before capitalization

- To identify the benefits of bank capitalization

- To identify the effect of bank capitalization on Nigeria, economy at large.