ABSTRACT
The research work attempts to assess the financial
consequences of merger and acquisition of commercial banks in Nigeria. The
research analysis used published audited accounts of ten (10) out of
twenty-four (24) banks that emerged from the consolidation exercise and data
from the Central Bank of Nigeria (CBN). Data used for the work were collected
from both primary and secondary sources. The relevant data collected were
analyzed and tested using simple percentages, tables, bar-charts. Subsequently,
the three hypotheses formulated in this research work were tested using
regression analysis and correlation co-efficient
). The result of the analysis revealed that there is significant
relationship between pre and post merger and acquisition capital base of
commercial banks and level of profitability, there is significant difference
between pre and post-merger and acquisition earnings per shares, merger and
acquisition have also increased the capitalization of commercial banks,
post-consolidation also witness changes in company’s share ownership, increase
in the cost of services and changes in bank lending rates. Based on these
findings, it can be concluded that the merger and
acquisition exercise has improved the overall performances of banks
significantly and also has contributed immensely to the growth of the real
sector for sustainable development. Finally, the study
recommends that in order to safeguard against possible abuse of the concept of
mergers and acquisitions; the Central Bank of Nigeria (CBN) and other
regulatory authorities should check all manner of abuse that may arise which
may not be in the interest of shareholders and the general public; to generate
more profit, the bank need a good regulatory environment that will enable them
to expand their scope of businesses but strictly within the financial service
industry; the government should provide necessary infrastructure in order to reduce
the cost of doing business scientifically to allow banks to make profit; the
Central Bank of Nigeria (CBN) being banks’ supervisory agent should intensify
its efforts towards effective monitoring and ensure that the gain from the
merger and acquisition is sustained.
103 Pages
Project
Reference Code: C002
CHAPTER
ONE
INTRODUCTION
1.1
Background of the Study
Banks are the
linchpin of the economy of any country. They occupy central position in the
country’s financial system and are essential agents in the development process.
By intermediating between the surplus and deficit savings' units within an
economy, banks mobilize and facilitate efficient allocation of national
savings, thereby increasing the quantum of investments and hence national output
(Afolabi, 2004).Through financial intermediation, banks facilitate capital
formation (investment) and promote economic growth.
The decade
1995 and 2005 were particularly traumatic for the Nigerian banking industry;
with the magnitude of distress reaching an unprecedented level, thereby making
it an issue of concern not only to the regulatory institutions but also to the
policy analysts and the general public. Thus the need for a drastic overhaul of
the industry was quite apparent.
In furtherance
of this general overhauling of the financial system, the Central Bank of
Nigeria introduced major reform programmes that changed the banking landscape
of the country in 2004. The main thrust of the 13-point reform agenda was the
prescription of minimum shareholders' funds of 25 billion for Nigerian Deposit
money bank not later than December 31, 2005. In view of the low financial base
of these banks, they were encouraged to merge. Out of the 89 banks that were in
operation before the reform, more than 80 percent (75) of them merged into 25
banks while 14 that could not finalized their consolidation before the
expiration of deadline were liquidated.
For instance between 1993 and 1996, about 1500
mergers were recorded in the USA (Pilloff 1996), similar experience was
observed in the Europe and Asian continents (Schenk 2000).
To a large
extent, this consolidation is based on a belief that gains accrue through
expenses reduction, increased market power, reduced earnings volatility, and
scale and scope economies. However, the characteristics of the kind of reforms
induced mergers and acquisition of the banking industry creates doubts about
its potentials of realizing efficiency gains. A deeper look at the 25 banks
that emerged after the consolidation shows that most banks that were regarded
as distressed and unsound regrouped under new names or fused into existing
perceived strong banks not necessarily to correct the inefficiency in their
operating system but just to meet the mandatory requirement to remain afloat
and to continue business as usual.
Mergers and
acquisition or any other form of consolidation may influence bank interest
rates, competition and transmission mechanism of monetary policy in so far as
the increase in size and the opportunity for reorganization involved may either
provide gains in efficiency that bear on marginal costs or give rise to
increase in market power, or both together. Gains in efficiency would be
obtained in moving on to greater scale of activity (if there are economies of
scale).
Since the
essence of any reforms is to bring greater efficiency not only in the operation
but also their contributory role to the overall economy, then it is important
to also raise the issues whether the recent mergers and acquisitions have
really impacted positively on both credit allocation and saving mobilization
through reduced cost of borrowing and increased returns on savings.
Whether or not
bank mergers actually achieve these expected performance gains is still remain
critically an empirical question. If consolidation does, in fact, lead to
gains, then shareholder wealth can be increased. On the other hand, if
consolidating entities do not lead to the promised positive effects, then
mergers may lead to a less profitable and valuable banking industry.
Mergers and Acquisitions are commonplace in developing countries of
the world but are just becoming prominent in Nigeria especially in the banking
industry.
Umoren (2007) says that merger and acquisition is simply another way of saying survival of
the fittest that is to say a bigger, more efficient, better-capitalized, more
skilled industry. Is part of the natural evolution of industries? It is primary
driven by Business motives and/or market forces and Regulatory interventions.
The issues therefore, which this study intend to address are whether merger and
acquisition will bring about efficient
reliable and sound capital base for the
bank that fully embraced mergers and to
what extend can bank merge boost the
confidence of the customers , the investors , the shareholders and ability to
finance the real time sector .
Therefore, since the importance of merger and acquisition cannot be overemphasis, this prompted the researcher’s interest to assess the perceived financial consequences of merger and acquisition on the banking sector in Nigeria.
1.2 STATEMENT
OF THE PROBLEM
1.3 OBJECTIVES OF THE
STUDY
1.4
RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESES
1.6 SIGNIFICANCE OF THE
STUDY
1.7 THE SCOPE AND LIMITATION
OF THE STUDY
1.8
DEFINITION OF TERMS
1.9
ORGANIZATION OF THE STUDY
CHAPTER
2
LITERATURE
REVIEW
2.1 INTRODUCTION
Mergers and
acquisitions (M&As) are a global phenomenon, with an estimated 4,000 deals
taking place every year. However, they are not a recent development; four
periods of high merger activity, also known as merger waves, occurred in the
United States in 1897-1904, 1916-29, 1965-69, 1984-89 and 1993-2000 (ILO, 2001;
Jimmy, 2008; Mangold and Lippok, 2008) consolidation before the expiration of
deadline were liquidated.
Craig and
Hardee (2004) conducted investigation on bank consolidation and concluded that
as the banking consolidation continues, "relationship" lending is
becoming increasingly rare. As credit scoring and formal, formulaic methods are
used more and more, specifically by the large banks, many small businesses may
find out that they do not "fit" the model, especially those
enterprises with negative equity. Thus, small businesses may be filling the
financing void that is being created by the bank consolidation with non-bank
sources of funds.
2.2
History Of Banks Recapitalization In Nigeria
2.3 Banks Consolidation Through Merger And Acquisition
2.4 Approval Under Merger And Acquisition
2.5 Procedures For Obtaining Approval For Mergers And Acquisitions
2.6 The Role Of SEC, CBN, NSE, And CAC As Regulatory
Authorities In Mergers And Acquisitions
2.6.1 Securities And Exchange Commission (SEC):
2.6.2 Central Bank Of Nigeria (CBN) Approval:
2.6.3 Nigeria Stock Exchange (NSE) Approval:
2.6.4 Corporate Affairs
Commission (CAC) Approval:
2.7 A Review Of Bank Concentration Theories
2.8 Pro-Concentration Theories
2.9
Evolution Of The
Nigerian Banking Industry
2.10
Regulation Of Nigerian
Banking Industry
2.11
Concept Of Merger And Acquisition
2.12 Types Of Mergers And Acquisitions
2.13 Stages Of Merger And Acquisition
2.14 Factors Influencing M&A Outcomes: Eight Schools Of Thought
2.16 Motives Behind Merger And Acquisition
2.14 Challenges Of Bank Consolidation
2.15 Prospect Of Banks After Consolidation
CHAPTER
THREE
RESEARCH METHOD
3.0 INTRODUCTION
This
chapter describes the procedures for data collection and method of data
analysis that was used for this research.
The section therefore, explores the most
suitable research methodology required for the collection, presentation and
analysis of data for the study with a view of reaching objective outcome.
3.1 RESEARCH POPULATION
The present work borders on financial consequences of merger and
acquisition of commercial banks. The population of study for this work is
defined to include all categories of staff of commercial banks operating within
Nigeria that met the recapitalization deadline (a total of 24 four that made it
out of 89 eighty-nine) and customers of the bank and the general public. However, due to time and financial
constraints the researcher did not find it possible to conduct the study with
all the staff of commercial banks existing in Nigeria. The total number of
commercial banks used for this study is 10 (ten) out of twenty-four (24)
commercial banks in Nigeria.
Due to the practicability and accessibility constraint of visiting
all the branches of the fore- mentioned banks, the research is restricted to
branches in the Port Harcourt City, Rivers State. The resultant effect of this
generalization of the findings on all the branches of the five banks in
Nigeria.
3.3
Sample Size Determination
3.4 Research Design
3.5
Sources Of Data
3.5.1 Primary Sources Of Data
3.5.2
Secondary Sources Of Data
3.6
Data Collection Method
3.7 Design
And Administration Of Questionnaire
3.8
Operational Measures Of The Variables
3.9 Data Analysis Techniques
3.9.1 The Percentage Analysis
3.9.3 Karl Pearson Product- Moment
Correlation Co-Efficient
3.10 Validity And Reliability Of The
Research Instrument
CHAPTER FOUR
DATA PRESENTATION,
ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter deals with the analysis of data collection through
questionnaires administered to respondents with respect to this study.
Consequently, this chapter discussed the features of the sample and dwell on
the key issues that are considered pertinent to this research.
4.2 ANALYSIS AND
INTERPRETATION OF DATA
Table 4.2.0 Distributions
and Return of Questionnaires
|
S/N
|
Bank/C.I
|
No Distributed
|
% of No Distributed
|
No Returned
|
% of No Returned
|
No Not Returned
|
|
1
|
AB
|
6
|
5.7
|
4
|
4.21
|
2
|
|
2
|
AFB
|
6
|
5.7
|
4
|
4.21
|
2
|
|
3
|
DB
|
6
|
5.7
|
4
|
4.21
|
2
|
|
4
|
FCMB
|
6
|
5.7
|
5
|
5.26
|
1
|
|
5
|
FDB
|
6
|
5.7
|
5
|
5.26
|
1
|
|
6
|
FB
|
6
|
5.7
|
4
|
4.21
|
2
|
|
7
|
FBN
|
6
|
5.7
|
5
|
5.26
|
1
|
|
8
|
GTB
|
6
|
5.7
|
6
|
6.32
|
0
|
|
9
|
OB
|
6
|
5.7
|
6
|
6.32
|
0
|
|
10
|
UBA
|
6
|
5.7
|
6
|
6.32
|
0
|
|
11
|
Customer/Investors
|
35
|
33
|
25
|
26.32
|
0
|
|
|
TOTAL
|
106
|
100
|
95
|
100
|
11
|
Sources: Field Survey
Data, April 2019
4.2.1
Responses To Question In Section A:
4.2.2
Responses From Section B
4.3
Test Of Hypothesis
4.3.1
Test Of Hypothesis 1
4.3.2
Test Of Hypothesis 2
Test Of Hypothesis 3
4.3.3 Summary Of Test Of Hypothesis
4.4
Discussion Of Findings
CHAPTER
FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSIONS
5.3
RECOMMENDATIONS
BIBLIOGRAPHY
Adegbite, L. O. and Carew, K. O. (1989): Practice and Procedure of
Mergers. The Gravitas
Review
of Business and Property Law, April, Pp. 47-55.
Afolabi, J. A. (2004): Implication
of the Consolidation of Banks for the Nigerian Banking
System. Paper Presented at
the NDIC Organized Workshop for FICAN Enugu.
Agbaje, O. (2008): ‘The Banking
Industry in 2008’. Business day Online. Available at:
Http://Www.Businessdayonline.Com/Analysis/Backpage/4569.Html
(Retrieved 2
June 2008).
Project Reference Code: C002
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