The study is based on the capitalization m Nigeria banking industry.


The study critically looked into the reasons for concern over capital adequacy, need for capital and the legal and regulatory control of capital in the banking industry.


The research in the course of study made use of questionnaires as a method 'of data gathering, and the data was statistically analyzed, using simple percentage and chi­-square method of analysis.


Secondly, data were obtained through the review of related literature including· textbook, banks manuals and journals. The data obtained were analysed and on the basis of the findings, made some recommendations.


The study recommendations. The study recommends that government must always ensure that bank operative in the economy shall not at any point in time operates contrary to the provision of the act as regards to capitalization.


It suggested that bank should always see capitalization strategy as a shield on them and confidence regained from those ones lost in the past times before recapitalization.


Furthermore, bank should always see merging as one of the best strategies rather than liquidation.











1.0                CHAPTER ONE: INTRODUCTION

1.1     Background of the Study

1.2     Purpose of the Study

1.3     Choice of study

1.4     Significant of study

1.5     Scope of study

1.6     Working of Hypotheses

1.7     Limitation of Study

1.8     Research Methodology

1.9     Historical background of the study area



2.0                Introduction

2.1     Research for concern over capital adequacy\

2.2     Legal and Regulatory Control of Capital

2.3     The Need for capital

2.4     Condition Influencing capital adequacy

2.5     Forms of Capitalization may take

2.6     Bank Capitalization and Leverage

2.7     Why should the Minimum Capital Base for Banks



3.1     Research Design

3.2     Data Collection

3.3     Identification of Population

3.4     Determination of Sample size

3.5     Questionnaire Assumption

3.6     Questionnaire Assumption

3.7     Reliability Test

3.8     Validity

3.9     Questionnaire Administration

3.10   Validity




4.1     Data Analysis and Interpretation




5.1     Summary

5.2     Conclusion

5.3     Recommendation
















The engine for economic growth of any society banking institution. No doubts, that in the past the banks have experienced a lot of pitfalls even till this present day. Banks by its nature mobilize funds from the surplus spending units into the economy and by on- loading such funds to the deficit spending unit for investment, banks increase in the process, the quantum of national savings and investment. Through an appropriate investment multiples, the volume of goods and services produced in an economy increases overtime as a result of the investment projects embarked upon through banks direct and indirect contributions towards the growth of the national economy is achieved contributions towards the growth of the national economy is achieved. They [banks] succeed in promoting an efficiency payment system, and creating banking habits needs a solid capital base and developing the society at large. However, an efficient banking system needs a solid capital base. The question now arises; what is capital? According to Oxford mini dictionary, capital is accumulated wealth or money with which a business is started”. In banking, capital has these two meaning. At the onset, capital in the form of issued and paid up shares is money with which the business of banking is started.


Overtime, the capital funds of the bank reflect the accumulated [addition or depletion] of capital.


In good production business, the need for capital is obvious, as this is required to provide for substantial fixed capital resources in form of building, plant and machinery, and even working capital resources in form of raw material. The need for capital resources is not in the same form business organization in the financial services industry. In the main, the intelligent of the operators are employed for financial intermediation between the Savers and borrowers in the economy.


Thus, the banker, the goldsmith, did not require addition capital beyond what he had a gold smith for his early banking business. However, today, the ingenuity of banker has to be developed and employed so much that we can talk of banker been engaged in financial engineering.

Consequently, the issue of cost of capital has to be considered. Traditionally, the term cost of capital meant some interest rate paid on borrowed funds. This definition implies that cost is a cash cost or an out of pocket cost to be paid out in implicit opportunity cost. Moving from the general case to branding, the concept of cost funds as it relate to the banking industry was defined by David Durand in 1995 as: The rate of return required to attract new equity into the business fast enough to keep pace with the secular increase in bank deposit. Having seen what capital means and cost associated to it, one may ask. Do banks have solid capital base? The answer is No. This has been responsible for the distress in the banking sector. And the government has overtime, regulate the required minimum paid up capital for banks before starting operation. But the persistent inflationary trend experience in our economy keeps eroding the capital base. Hence, a lot of people have lost their jobs, the effect is biting hard on the citizen because the banking sector employ at least (15 percent) of the Nigeria working population.

Apart from this, the multiplier effects it had on other sector of the economy ranging from agriculture to manufacturing have been devastating. This is so, due to role of banks in economic development.


Be it as it may, the way out is to find a lasting solution to the problem of the banking sector, through continual capitalization not occasion by distress. Presently, because of the weak capital base, they (banks) find it difficult to confidently transact business on behalf of their customers across the border of his country. In fact only few banks can boast of giving letter of credit.


Actually, the bank's capitalization decision and practice influence bank asset structure. And it is in these are of bank assets, or equivalently how large should be the composition of these are the main problems bank management.


Conclusively, the biting effects of economic recession with its attendant survival antidote make it different to capitalization of banks started along, the establishment of banking industry and presently the lies on capitalization. This research work will examine and evaluate the capitalization in banking.


Industry its economic consequences and further discuss whether the government regulation on the N25 million paid up capital for banks should be uniform for all banks.




With the rising inflationary trend, the government in 2004, saw the need to raise the minimum capital requirement of bank from N l billion to N25 billion capital base. This is because poor capitalization is identified as a major factor inhibiting against, bank's survival. The government also moves into restructuring some of the ailing banks and liquidate the terminally distressed ones.


In view of this, the research work IS expected to find solutions to some likely problems, which the banking industry or customers might face. These problems are outline as follow;


  • To what extent has capitalization affected the operation of banks?
  • What are the ways to be adopted to achieve capitalization before the dead line of [31 FIRST OF DECEMBER, 2005]?
  • How has capitalization affected the cost of services rendered to customers?
  • How those inflation erode the capital base of the banking sector?
  • Have the capital base of the banks meet up to international standard?
  • Can capitalization standard secure depositor’s funds?
  • Has capitalization brought about operational efficiency?
  • How does capitalization affect the dividend policy of the banks?



Financial distress syndrome is not an issue that is peculiar to Nigeria but rather features of global finance systems.  The causes, effect and remedies for problem failing banks are the same all over the world.

The regulators have been "defeated" by the problem once it take root as it has always defied all solution. No doctor­ regulator has ever been able to find any preventive vaccine for it, although they exist some reactive medicine. One of such reactive is capitalization.


Once the capital of a bank is eroded, it can easily be affected by other virus, so the purpose of this is to known economic implication of bank capitalization. Can this capitalization put an end to the distress now being experience in the banking sector?


1.4             RESEARCH QUESTIONS.

The research questions that would guide the Study are;

1.      What is capitalization?

2.      What are the effects of capitalization on performance of banking system in Nigeria?

3.      Does capitalization has positive effects on development and size of banks?

4.      Has capitalization leads to merger and acquisition of banks?



The completion of this research project would be of great importance to the society as a whole since it will lead them to know the effect of government policies on capitalization of banks.

  • Capitalization will fill the gap created by inflationary trend, which have eroded the capital base of banks.
  • With capitalization, customers' confidence will be restored in the banking system.
  • Finally, the research work will serve as spring board to furthering this study area.



The findings on this project will be based on the following hypothesis:

  • That capitalization process will give banks good solid capital base for operations.
  • That capitalization will increase confidence of customers
  • That capitalization will increase financial engineering.
  • That capitalization will increase time volume of transaction both locally and abroad.



The problems to be encountered in the process of carrying to this Research will include the following:

  • The availability of people to be contracted and their willingness to express their frank opinion in issues relating to the banks.
  • The collection of the questionnaire raised may not turn in the questionnaire in time and some may not even give a feedback making it a more different task.
  • The time to be spent on this research is short.



This study will be divided into five chapter as follows:


Chapter one focused on the introduction of study which include back ground of study, statement of problem, objectives of study, research questions, significance of study, scope and limitation of the study and organization of study.


Chapter two contain literature review and theoretical frame fork of the study.


Chapter three contained the research methodology and method of date analysis.


Chapter four focused on data analysis and interpretation.


Chapter five contained the summary, recommendation and conclusion of the study.



The CBN is empowered by the Central Bank act (as amended) 1991, to “promote stability and sound financial system" and the Governor of the Central Bank of Nigeria is empowered further by the BOFIA to "make rules and regulations for the operation and control of all institutions under the supervision of the bank". The CBN is also exercising its power as the lender of the last resort.


Prior to 1991, the minimum paid up capital requirement for banks in Nigeria was N12 million for merchant banks and N20 million for commercial banks. A review that year moved the requirement to N40 million and N50 million respectively. This level lasted till 1997 when a uniform and N 50 million minimum capital was introduced. The reason for discontinuing the dichotomy was to allow for a level playing field and the realization that there was no real difference between the capital requirements of the two categories. It was also to prepare the system for the introduction of universal of banking. In 200, the minimum capital was moved to N1 billion for new banks while existing banks were expected to meet this level by December 2002.