MERGER AND ACQUISITION, A VIABLE OPTION FOR EFFECTIVE PERFORMANCE IN BANKING INDUSTRY OF NIGERIA
CHAPTER ONE
INTRODUCTION
Background to the Study
The banking industry in Nigeria plays a very significant role in the economic development of the country. According to Nzotta (2004) banks as part of the Nigeria financial system channel scarce resources from surplus economic units to deficit units and the exert a lot of influence on the pattern and trend of economic development through their lending and deposit mobilization activities. This is why Abdullahi (2002) say the banking industry in particular play crucial role in the economic development by mobilizing savings and channeling them for investment especially in the real sector which increase the quantum of good and service produced in the economy, thus national output increases and the level of employment improves.
The banking industry in Nigeria is able to play the positive role only if it is functioning efficiently. However, if it is repressed, inefficient and incapable of providing timely and quality services, the banking system could become a major hindrance to economic growth and development. This led to dwindling confidence in the banking industry by Nigerian (Sanni, 2009). Adewoyin (2006) noted that bank failure has been experienced since 1990s during which period one out of every three banks was marginally unsound or totally unsound – Sanna (2009).
Soludo (2006) enumerated the fundamental problems of Nigerian banks, Particularly those classified as unsound which include persistent liquidity, poor assets quality and unprofitable operation and stated the major problems as follows, over-dependence-on public sector deposit and neglect of small and medium as evidence by negative capital adequacy ratios and shareholders’ funds that had been completely eroded by operating losses, gross insider abuses, resulting in huge non-performing insider related credits, weak corporate government and risk management practices, Low depositors’ confidence, banks that could not effectively support the real sector of the economy and banking sector with credit to the domestic economy at 24% economy and banking sector with credit to the domestic economy at 24%) of GDP compared to African average of 87% and 272% for developed countries.
Given these bedeviled circumstances, it became sensible to ensure quick and spontaneous intervention strategies to save the system from total collapse and to improve the performance of the industry. Therefore, the driving forces behind the consolidation (merger and acquisition) agenda included; effective performance of the industry, better risk control, advancement of marketing and product initiatives, improvement in overall credit risk and technology exploitation, effective banking supervision, evolution of a strong and safe baking system, improved transparency and accountability, costs reduction and effective global competition, depositors’ trust among other factors. These drivers were anticipated to improve the operational efficiencies and operations of the players in the banking sector that will survive the consolidation era.
Statement of the Problem
On July 6, 2004, Prof. Charles Soludo announced that the minimum capital requirement base of banks in the country would be raised from N2 billion to N25 billion. Inability of some banks to afford it led to their amalgamation.
However, some banks in Nigeria are still facing some problems. That led to the 2004 and 2005 banks consolidation through merger and acquisition, from a capital base of N2 billion to N25 billion. Therefore, the objective of this study is to critically examine merger and acquisition, a viable option for effective performance in banking industry in Nigeria.
Purpose of the Study
The purpose of the research work is to know if merger and acquisition is a viable option for effective performance of banking industry in Nigeria.
The purpose of this study is:
• To examine thoroughly how merger and acquisition brings about increase in profit maximization in Nigeria Bank Industry.
• To find out the factors responsible for the merger and acquisition in Nigeria banking industry with the view of looking into its implication on banks and the society.
• To suggest how Nigeria banks can be effective in their activities and to enable shareholder and stakeholder understand the rudiment of post merger and consolidation of their investment.
Research Questions
The following questions are raised for the purpose of the study;
• Does merger and Acquisition bring increase in profit maximization in Nigeria Banking Industry?
• Does Merger and acquisition in Nigeria banking industry have any implication on banks and development of Nigeria Economy?
• Is Merger and acquisition in banking industry in Nigeria responsible for greater efficiency and managerial performance in the banks.
Research Hypotheses
The hypotheses were formulated for the purpose of the study;
• Merger and Acquisition does not significantly bring increase in profit maximization in Nigeria Banking Industry.
• Merger and Acquisition of Nigeria Banking Industry do not significantly have any implication on banks and development of Nigeria Economy.
• There is no significantly relationship between effect of merger and acquisition and the effective performance and management improvement in Nigerian banks.
Significance of the Study
The banking industry plays a significant role in the economic development of the country but they are facing numerous problems. So, the significance of this study is:
• To open the understanding of people into the importance of merger and acquisition in Nigeria Banking Industry.
• To provide possible means through which Banking Industry in Nigeria can perform effectively and curb with the problem facing them and thereby bringing improvement in Economic sector of the country.
• To throw more light on how effective and stable banking have manipulated the lives of numerous countries into paradise on earth through banking reforms.
Scope and Limitation of the Study
The study is mainly focusing on merger and acquisition, a viable option for effective performance in Banking Industry in Nigeria.
The study will only cover ECOBANK due to time factor and financial constraints.
Operational of Terms
1. Quantum: Unit of energy
2. Merger: The joining together of two or more companies or organization to form one large one.
3. Acquisition: When a company or an organization buy or obtain another company to the existing one that is already exist.
4. Banking: Is the business activity of banks and similar institutions.
5. Mobilization: To encourage people to support something in an active way.
6. Dwindling: Something become smaller or weaker.
7. Management: is the control and organizing of a business or other organization.
8. Capitalization: Technique to calculate the value of a business based on the value of its shares or on the amount of money it makes.
9. Consolidation: To strengthen the position of power or success that you have to that it become more effective or continues for longer.
10. Synergy: The additional effectiveness when two or more companies or people combine and work together.
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