International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Bank Recapitalisation in Nigeria: Resuscitating Liquidity or Forestalling Distress?
Nasiru Musa Yauri, Joshua Musa, Nasiru Abdulsalam Kaoje

Banks are key players in the financial sector of any nation’s economy and sound macroeconomic management must ensure the financial health of banks in order to guarantee economic stability and economic growth. The study asks whether capital regulation merely addresses the immediate and short-term problem of illiquidity or it has a far-reaching effect of forestalling distress amongst banks in Nigeria. Data collected from the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation for the period 1997-2006 was used to test the research hypotheses using correlation analysis. Results show that there exist a relationship between increase in minimum capital base of the commercial banks and their liquidity and asset quality as both liquidity levels and asset quality tend to improve with recapitalisation. Despite these findings, the period after 2006 recorded four insolvent banks as evidenced in Ndanusa (2009) and Alford (2010). The paper concludes that the post 2006 crisis were clear indications that increasing minimum capital requirement of banks alone only account for a short-term improvement in the liquidity position of banks and improvement in their asset quality but do not have the long-term effect of forestalling distress. The study suggests that a lot more need to be done in curbing financial distress among commercial banks in Nigeria than mere increase of their minimum capital requirement. Such other approaches as improving the corporate governance of banks must be adopted to forestall future occurrence of the threat of distress in the sector.

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