The Effect of Recapitalization on Performance of DepositMoney Banking in Nigeria IntroductionThe banking sector drives capital formation in the financial system by collecting deposit liabilities from surplus economic units, which are then converted into loanable funds of various quantities and distributed as credits to fund users. The role of banks in loan creation has been acknowledged as a crucial growth accelerator (Markjackson, Ekokemi, Nelson, & Okoyan, 2017). The ability of banks to promote economic growth and development, on the other hand, is dependent on the financial system's health, soundness, and capability. Banks, as a significant part of the financial landscape, must be reformed periodically in order to improve their competitiveness and capacity to play a critical role in financing investments, hence recapitalization is one of the most effective strategies to carry out this complex reforms. Monetary authorities raise commercial banks' operational capital on a regular basis to ensure banking industry's strength and sanity. It is a component of banking sector reforms, and various central banks throughout the world have successfully employed it as a monetary policy instrument (Attama & Yuni, 2021).A detailed investigation of Nigerian financial institutions reveals that the banking industry had major liquidity problems between 1989 and 1990. The crisis led to the failure and distress of large banks, which had a negative impact on the economy as a whole. Due to the detrimental effects of the crisis, regulatory authorities forced national and international banks to expand their capital bases from N2 billion to an astounding N25 billion in 2005. The major recapitalization effort which took effect in 2006, delivered financial sector stability, also contributed to boost and preserve depositor and other stakeholder confidence (Ighoroje, Ese and Akpokerere, 2021). Some banks were forced to increase the required amount, resulting in a series of mergers and acquisitions that reduced the number of banks from 89 to 25 in 2005 (CBN, 2006). Due to sharp practices, nonperforming hazardous assets, distresses, and corporate governance difficulties, the number has continued to drop (Osuagwua & Nwokomab, 2017). Undercapitalization, lack of a rigorous risk assessment system, and regulatory leniency on the part of the Central Bank have been blamed by certain experts, including
This study examined the effect of liquidity management on banks' performance in Nigeria for the period of ten (10) years (2012-2021). This is necessitated to respond to the fact that some Deposit Money Banks in Nigeria have some time ago been declared technically insolvent as a result of poor liquidity management, therefore the study is poised to find empirical evidence of the degree to which effective liquidity management affects the profitability of Deposit Money Banks, and how these banks can enhance their liquidity and profitability positions. Four proxies for liquidity management (liquidity ratio, cash ratio, efficiency ratio and loan-to-deposit ratio) were regressed against Tobin's q using Fixed Panel Least Square method in the model estimation. Other preliminary tests carried out include the descriptive statistics test, Levin, Lin and Chu (LLC) unit root and the Hausman Specification tests. The findings of the study indicate that liquidity management and efficiency ratio have a positive and significant relationship with the performance of Deposit Money Banks in Nigeria. On the other hand, the Cash Ratio has a negative and insignificant relationship with the performance of Deposit Money banks in Nigeria. Based on the above findings, the study concludes that there is a significant positive relationship between liquidity management and bank performance in Nigeria. Finally, the study recommends that banks should embrace measures that will make certain or ensure effective liquidity management rather than directing attention, time and resources to the profit maximization concept only. This, therefore, indicate that banks should invest the available excess cash in shortterm instruments of the money market.
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