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1.1 BACKGROUND OF THE STUDY
Corporate restructuring as a management concept refers to one of the long range planning techniques available to managers of industries or organizations. It aims at redirecting and controlling the future activities of the organization for periods extending up to 15 or even 25 years ahead. Restructuring as a planning activity does not merely predict the future, rather, it is a programme of intended actions and desired results encompassing all areas of the organizational structure. In practice, it is usually that business decisions do not occur as planned owing to the predominance of risk factors within the operating environments.
Such risk factors include political or legal directives that regulate the conduct of businesses, technological changes that bring about new improved ways of doing things, competition amongst members of the same industry, shifts in the demand curve owing to the positive or negative changes in the macro economy and social habits of the population. These constitute exogenous inspired risk over which organizations exert minimal or no influence. Other risks that are endogenous over which organizations may exert some level of control include its earning capacity and timing of such earnings, the quality of the human resources and their loyalty, financial stability, management competence, infrastructural adequacy and technical obsolesce.
The existence of these risks affect business profitability objective and to a great degree the organization’s long term survival if not properly and adequately controlled. For very serious threats, the solution may result in a programme of adjustments of the existing structure or outright replacement with new ones.
The history of banking development in Nigeria has been punctuated by periods of banking distress, the earliest being during the 1950s. In the
period 1950 – 51, often referred to as the period of “banking boom” in Nigeria, about eighteen banks were hurriedly established. By the end of 1954 all of them had either gone into voluntary liquidation or been closed down (Ajah, et al 1981:16). The reasons for their speedy collapse were appropriately captured by Afolabi (1991:250), as inadequate capitalization, managerial incompetence, competition, political, poor lending services and the absence of any statutory body to regulate the industry.
In the 1990s, the nation again witnessed another round of distress in the sector. According to the 1990 Nigerian Deposit Insurance Corporation (NDIC) report, 9 out of the 107 licencsed banks in the country were technically insolvent for reasons of ineffective management, deteriorating asset quality, capital inadequacy, low operational efficiency and problem of competition in the sector with the result that the earnings and future viability of these banks became uncertain.
The Central Bank of Nigeria (CBN) in its end of year report of 1995 noted the assuage in the number of distressed banks put at 51 out of the total of 116 licensed banks while the number of revoked bank license at that period stood at 5.
A synopsis of the reasons for this upsurge of distressed banks reveals a combination of structural problems. As captured by Okafor (2000:14), the banking industry witnessed rapid expansion both in the number and complexity of banking outfits following the deregulation of the industry in the wake of the 1986 Structural Adjustment Programme. The shift in the competition that followed, aided by the absence of appropriately and adequately trained human capacity both at Management and Supervisory levels to guide and control the emerging phenomenon which led to the distress and failure of many banks. The situation was not equally helped by the evaluation of knowledgeable and sophisticated customers whose demands are influenced by their exposure to global practices. In the same
vein, the technological innovation being introduced in the industry have entirely redefined the banking landscape and now constitute a strong marketing tool in retaining and winning new customers, bank failed to address the problems which essentially calls for recapitalization and asset restructuring so as to achieve improved performance.
Corporate restructuring as a management tool is useful for both long term planning and business failure resolution strategy. The Nigerian productive sector is ripe with institutions and organizations that have conducted in one form or the other some aspects of structural adjustment be it financial restructuring, management strengthening, corporate refocusing, business process re-engineering (BPR), mergers and or acquisitions. The whole process is called corporate restructuring.
Many banks have effected changes in their corporate structures so as to achieve the desired synergy for effectiveness. Fast and efficient customers’ services at very competitive costs becomes the rationale for such restructuring, complemented by the re-engineering of the delivery processes.
In the light of the above, this research will examine the influence of the recent restructuring exercise of Union Bank of Nig, Plc on its corporate performance.
1.2 STATEMENT OF THE PROBLEM
It is without doubts that the Nigerian banking industry has remained under intense pressure as the distress in the sector persisted. This is in spite of official efforts by the monetary authorities to address the problems and restore confidence in the sector. Individual efforts on the part of banks to stay afloat is also evident in the number of banks that have already restructured their operations or still in the process.
Structural adjustments cannot however be an overnight affair and the problems that lead to this are quite fundamental. In the same respects, the gains or benefits from the exercise do not come instantly owing to the long gestation periods of some of the instruments of the restructuring.
The 1986 liberalization and deregulation of the Nigerian financial sector can be seen as the forerunner of this distress syndrome that now bestrides the banking sector like a colossus. Under the new liberal policies, many investors that lacked the required technical and managerial competence found their way into the sector. Quite a lot of them operated falsely. The general practice until the coming of the Prudential Guidelines/Directives later in Nov. 1990 was for banks to take credit of unearned incomes against non-performing or bad debts. This resulted in the overstatement of profits which are distributed as dividends thereby eroding the capital base of the banks. There was the issue of unmitigated high bad debt profile and inadequate trained manpower to sustain the upsurge in the number of banks in the industry. Competition which hitherto had been basically absent in the system created a new dimensional problem. The sector that was customers’ deposits with offers of business interest rate as high as 69% returns on deposits. It thus became evident that the operating structures as established by the banks cannot withstand this emerging phenomenon.
The earliest sign of distress in the sector was noticed in the inability of most banks to honour the offered high interest on due dates. Many customers lost their deposits resulting to a ruin on the banks. It is not unexpected that the weak ones were forced to either restructure, go into merger, acquisition or outright liquidation.
However, some of the failures would have been abetted if appropriate restructuring strategies were implemented. This would have
gone a long way in restoring sanity in the sector. Customers would have also been saved the nightmare of the loss of their hard earned deposits.
In this era of customers’ sophistication, advancement in information technology, complex operating environment and global industrial challenges, what is required is for management to be more proactive in dealing with these challenges. They should show more readiness for constant review of operational strategies.
In consideration of these challenges, this research will try to investigate the effectiveness of corporate restructuring as a problem resolution strategy in relation to its overall impact on the profitability and long term survival objective of the banks that have adopted it.
1.3 OBJECTIVES OF THE STUDY
The objectives of the study are:
a) To determine how corporate restructuring has helped to improve efficiency in customers services delivery.
b) To ascertain the extent at which the issue of high debt profile has been solved.
c) To find out whether profitability has been enhanced as a direct result of the exercise.
d) To ascertain the effectiveness of the exercise as a solution strategy against banking distress and its overall economic and social consequences.
e) To make some useful recommendations on how best corporate restructuring can help achieve organizational desired goals and objectives.
1.4 RESEARCH QUESTIONS
The following are the research questions:
1. How has Corporate Restructuring helped to improve efficiency in customers’ services delivery?
2. To what extent has the issue of high debt profile been solved?
3. Has profitability been enhanced as a direct result of the exercise?
4. What is the effectiveness of corporate restructuring strategy against banking distress and its overall economic and social consequences?
1.5 THE SIGNIFICANCE OF THE STUDY
Although, much has been written about bank restructuring in recent times, quite a lot of these literatures approached the issues only as a failure resolution option. Though, bank restructuring can sometimes be an appropriate approach for failure resolution, it can also be embarked upon to enhance performance in a good performing bank.
In view of the above reason, this study does not limit i
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