Saturday, 13 July 2013

THE EFFECTS OF BANK CONSOLIDATION ON THE PERFORMANCE OF BANKS IN NIGERIA: A CASE STUDY OF FIDELITY BANK, UBA, ACCESS BANK AND UNION BANK



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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