ABSTRACT
In order to strengthen the competitive
and operational capabilities of banks in Nigeria with a view towards returning
global and public confidence to the Nigerian banking sector and the economy in
general, the central Bank of Nigeria instituted a bank reform programme in 2004
that took effect in January 2005. The consolidation exercise saw most of the
then 89 banks merging with each other so as to meet the recapitalization
requirement of CBN. It was earlier speculated in some financial analysis quarter
that the exercise might be he only remedy to the problem of Nigerian financial
system by restoring stability in the banks. This, however, has turned out to be
the opposite as most post-merger results tend to highlight that consolidation
has not improved banks performance. This
study tried to evaluate the impact of banks consolidation on the performance of
Nigerian banks. To do this, 8 years pre and post merger financial statements of
4 consolidated banks (Access bank, Fidelity Bank, UBA, and Union bank) were
obtained, adjusted, their average taken and carefully analyzed. The performance
indices that were studied include profitability, liquidity, and deposit. The
study employed bar chart in the course of data analysis and the pool-variance
t-test distribution was used to test validity of the pre-stated hypothesis. The
result revealed no difference in pre and post consolidation periods in all the
variables studies. The study therefore, concluded that consolidation did not
make significant impact on the performance of Nigerian bank.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It
is a known fact that the banking sector is the engine of growth in any economy,
given its function of financial intermediation. Through this function, banks
facilitate capital formation, lubricate the production engine turbine and
promote growth (Adeyemi, 2006:3). However, banks ability to engender economic
growth and development depends on the health, soundness and ability of the
system. The need for strong, reliable and viable banking system is underscored
by the fact the industry is one of the few sectors in which the shareholders
fund is only a small proportion of the liabilities of the enterprises. It is
therefore, not surprising that the banking industry is one of the most
regulated sectors in any economy.
It
is against this background that the Central Bank of Nigeria outlines the first
phase of its banking sector reforms designed to ensure a diversified, strong
and reliable banking industry in July 6, 2004. The primary objective of the
reform according to Adeyemi (2006:14) is to guarantee an efficient and sound
financial system. The reforms are also designed to enable the banking system
develop the required resilience to support the economic development of the
nation by efficiently performing its function as the fulcrum of financial
intermediation (Lemo, 2005:16).
Consolidation
of banking institutions is therefore among the element of the 13-point reform
programme of CBN. Uhomoibli (2006:6) posits that the main objectives of bank
consolidation in Nigeria is to move the Nigerian economy forward and strengthen
the banking system in order to facilitate development, to ensure a diversified,
strong and reliable banking sector which will ensure safety of depositors fund,
play active and competitive role in Africa and global financial system.
The
consolidation and recapitalization exercise in the banking industry has
necessitated the four different banks to engage in corporate merger and
acquisition. Fidelity Bank merged with FCMB and acquired Manny bank. United
Bank for Africa (UBA) on its own acquired standard Trust bank and Continental
bank, Access Bank acquired Marine Bank and Capital Bank while Union Bank
acquired the Former Universal Trust Bank Plc and Broad Bank Ltd and absorbed
its erstwhile subsidiary Union Merchant Bank Ltd. However, the four case study banks retained
their brand name after the merger and acquisition basically because of their
greater capital contribution. In all, eighteen (1) banks were able to meet up
with the N25billion capital base through merger and acquisition, six (6) banks
stood alone while fourteen (14) could not meet the requirement and has to fold
up.
The
bank consolidation policy was carried out mainly through merger and acquisition
which resulted in the compression of eighty-nine (89) erstwhile commercial
banks in Nigeria to twenty-five (25) banks with one bank later existing the
scene remaining twenty-four (24) banks. Now that the consolidation programme
has come and gone, Omoh (2006:5) notes that attention has been shifted to its
term effects on the Nigeria banking system.
It
is on this background that this study tagged “the effects of bank consolidation
on the performance of banks in Nigeria” is posed to assess the extent to which
consolidation has impacted on the general performance of Nigerian banks using
Access bank, UBA, Fidelity bank and Union bank as case study.
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