Effect of Recapitalisation on Liquidity Position of Quoted Deposit Money Banks in Nigeria

Abstract

Nigerian Banking Industry has undergone a lot of reforms since 1952 among which recapitalization was one of the major thrusts of the reforms. The sector faced numerous challenges that were traced to under capitalization which hindered satisfactory liquidity position in the sector, this in turn affected the public’s confidence in the sector. It was one of these reasons that the Central Bank of Nigeria directed all Deposit Money Banks in Nigeria to increase their capital base in order to address the problem of general underperformance and develop- strategies towards improving the capacity for better performance. This study, therefore, examined the effect of recapitalization on liquidity position of quoted Deposit Money Banks in Nigeria. Causal research design was adopted while secondary data in terms of the annual report of Nigerian Deposit Insurance Corporation (NDIC), Central Bank of Nigeria (CBN) and Deposit Money Banks in Nigeria were employed. The data were analyzed using pooled regression analysis through STATA windows 14 package. The finding from the study shows that recapitalisation has led to significant increase in liquidity position of quoted Deposit Money Banks in Nigeria. The implication of the finding is that recapitalisation has boost the liquidity position of Deposit Money Banks in Nigeria. The study therefore recommended that the Central Bank of Nigeria should closely monitor to strike a balance between liquidity and profitability of Deposit Money Banks in the country. The study has also established that the capital structure of Deposit Money Banks in Nigeria be maintained through the use of consolidation, convergence and market capitalisation.