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EFFECTS OF BANK CONSOLIDATION ON THE PERFORMANCE OF BANKS IN NIGERIA

Project Topic: The Effects of Bank Consolidation on the Performance of Banks in Nigeria


CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

…..However, the four case study banks retained their brand name after the merge and acquisition basically because of their greater capital contribution. In all, eighteen (18) 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 exiting 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.

1.2           STATEMENT OF THE PROBLEM

        Prior to bank consolidation programme in Nigeria, the banking system was highly oligopolistic in nature with remarkable features of market concentration. Adeyemi (2006:10) notes that twenty-four out of the eighty-nine deposit money banks that existed then exhibited one form of weakness or another. Some of the lapses in the banking system then were

  • Low capital quality
  • Illiquidity
  • Dwindling earnings and in some cases loss making, unhealthy competition etc.

From the foregoing, it was apparent that a reform of the banking system in Nigeria was inevitable. To address this problem, the Central Bank of Nigeria (CBN) came up with the policy of bank consolidation which anchored on recapitalization through merger and acquisition. Banks were compelled to merger or acquire weaker ones to be able to raise their capital base to twenty-five billion naira (25billion).

By the end of 2005, the eighty-nine banks that existed before were compressed to twenty-four (24). These were the banks that met the twenty-five billion naira minimum capital as stipulated by CBN. While some banks (such as Eco bank, Zenith Bank, First Bank etc) were able to stand alone, others embarked or passed through mergers and acquisitions to meet the capital requirement. Access Bank acquires Marine Bank and Capital Bank, Fidelity Bank merged with FCMB and acquired Manny Bank, UBA acquired Standard Trust Bank and Continental Bank while Union acquired the former Universal Trust Bank Plc and Broad Bank Ltd.

It is barely six years since the implementation of bank consolidation in Nigeria; opinions are divided as to the impact of the exercise on the banks. The CBN in 2010 declared eight (8) banks in Nigeria unhealthy following their inability to pass the CAMEL test conducted by the CBN. In the light of all these, this study is asking; “Has the bank consolidation exercise impacted significantly on the performance of Nigeria Bank?”

1.3   OBJECTIVES OF THE STUDY

        This study in an attempt to ascertain the impact of consolidation in Nigeria on the performance of commercial banks shall try to

  1. Find out whether bank consolidation policy has impacted on the profitability of Nigeria banks.
  2. Examine the extent (if any) consolidation has affected the liquidity of Nigerian banks.
  3. Determine whether consolidation exercise has increased the deposits generated by Nigeria banks.
  4. Proffer and recommend adequate supervisory actions to enhance the performance of the post-consolidation banks in Nigeria.

1.4   research questions

The following question shall be raise in this study which answer shall aid the actualization of the above objectives.

  1. Does a measurable difference exist between the profitability of banks in the pre-consolidation period and the profitability of banks in the post consolidation period?
  2. Doe a statistical difference exist between the liquidity of banks in the pre-consolidation era and liquidity of banks in the post consolidation era?
  3. Is there statistical difference between the deposits generated by banks in the pre-consolidation period and deposits generated by banks in the post-consolidation period?

1.5   RESEARCH HYPOTHESES

  1. Ho: There is no measurable difference between the profitability of Nigeria banks in the pre consolidation period and profitability of banks in the post consolidation period.

Hi: There is a measurable difference between the profitability of Nigeria banks in the pre-consolidation period and profitability of banks in the post-consolidation period.

  1. Ho: There is no statistical difference between liquidity of Nigeria banks in the pre-consolidation era and liquidity of banks in the post-consolidation era.

Hi: There is a statistical difference between liquidity of Nigeria banks in the pre-consolidation era and liquidity of banks in the post-consolidation era.

  1. Ho: There no measurable difference between deposits generated by banks in the pre-consolidation era and deposits generated by banks in the post consolidation era.

Hi: There is a measurable difference between deposits generated by banks in the pre-consolidation era and deposits generated by banks in the post consolidation era.

1.6   SIGNIFICANCE OF THE STUDY

This study is timely especially today that controversy trails the outcome of the Charles Soludo’s (CBN) consolidation reform in the banking sector. The research will thus help clear the air as to whether bank consolidation exercise has benefited the banks in Nigeria or not. The study also will be of immense help to prospective researchers who may use it as a guide in related topics.

It is believed that the study, through its report findings, conclusion and recommendations will be of significance to regulatory authorities, commercial banks in Nigeria and the general public.

1.7   SCOPE OF STUDY

The study covers eight years performance evaluation of the case study banks Access Bank, UBA, Fidelity Bank and Union Bank. The period under study is divided into pre and post consolidation period with each comprising four years; that is, years 2001 – 2004 represent pre-consolidation period while years 2006 – 2009 represent post consolidation period.

1.8   LIMITATION OF THE STUDY

In every research study, there are usually certain constraints that are uncontrollable by the researcher which in one way or the other hinder the early completion of the study. Such constraints as encountered by this researcher include:

Time: The timeframe given for the submission of this work is relatively short thus hindering the use of some relevant materials such as would have been used in the study.

Materials: This topic is not totally exhaustive irrespective the voluminous materials the researcher was able to gather. The emphasis on secondary data by the authorities did not help matters either.

Finance: The researcher encountered some financial constraints in the course of carrying out this research. Hence, the study was limited to four banks out of the twenty-four licensed banks in the country.

—This article is incomplete———–This article is incomplete———— It was extracted from a well articulated quality Project, Research Work/Material

Project Topic: The Effects of Bank Consolidation on the Performance of Banks in Nigeria

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