MERGERS AND ACQUISITIONS IN THE NIGERIAN BANKING INDUSTRY

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MERGERS AND ACQUISITIONS IN THE NIGERIAN BANKING INDUSTRY

CHAPTER ONE

INTRODUCTION

Background to the Study

Mergers and acquisitions have emerged as a strategic tool for achieving corporate expansion and growth. Analyses have the banks to benefit from new business opportunities that would be created by change in the regulatory and technological environment. Aluo (2010) argue that Nigerian banks adopted different strategies to achieve the stipulated minimum capital base of N25 billion during the consolidation of banks in 2004 and 2005 which include mergers and acquisition. He further opines that mergers and acquisitions represent the widely used corporate strategy to penetrate into new market and new geogr4aphi regions, gain management expertise and knowledge or allocate capital. The question why mergers and acquisitions occurs has multiple answers.

The often discussed reasons are synergy, agency costs due to self-acquirer managers, discipline of target management and managerial timing of high market valuation. It is also noted that mergers and acquisitions in the banking industry are aimed at achieving economies of scale and scope. Mergers also help in the diversification of products which help to reduce risk us well. Over the years, the Nigerian banking industry has experience progressive banking reforms and intervention by the regulator. These reform have brought about unprecedented transformation with far-reaching implication on the industry.In Nigeria, the series of the reform in the banking sector over the past three years became imperative when the central bank of Nigeria (CBN) identified poor corporate government, poor risk management practice and inadequate disclosure among other in the industry. Furthermore, following the successful conclusion of the recapitalization exercise, Nigerian banks is now wearing a second outlook

The reform of the rescued bank which was finally resolved by CBN has unleashed tremendous change in the banking sector. The exercise has also placed the banking industry; ensuring a reliable and safe banking services; enhancing a sharp improvement in tern of transparency and accountability so as to induce the spirit of competitiveness and development-oriented banks Therefore. The intent of this study is to critically analysis mergers and acquisition in the Nigerian banking indstry and offer some required therapy to ensure optimal success in M&As

1.2 Statement of Problem

The need to carry out this study arose from challenges faced by Nigerian banks despite the reduction of bankd from 89-25 during theperriod of banking bankxing reform by CBN.these currenft challegnes faced by banks in the country have made researchers to question the efficacy of consolidatioin of banks. Mergters and acquisition suffers from several limitations. The probem most commonly citied is that vast majxority of work in the area is either based on case study or primarily anecdotal. Other include corruption, fraud, insider abuse weak management traceable to management, e.t.c.

Furthermore, there have been no studies that evaluate M&As as a consolidation strategy especailly in Nigeria, as it is a rasre occurrence din the country, not untilo the recent bank merger and acquisition witness in this banking sector as occasioned by the banking reforms. The study shall attempt to bridge this gap

1.3 Objective of study

The purpose of this research work is to examine the overall motive of mergers and acquisition in the banking sector. The study also focuses on the following micro objective viz:

To critically evaluate the structural and brand implication of mergers and acquisition options in the banking sector

To find out the motive behind mergers and acquisition

To examine the impact of mergers and acquisition on the level of competitiveness in the banking sector.

1.4 Significance of the study

This study will be beneficial to future research carried on similar topic. it will also provide a reference point to research student. In addition, the findings of this research will serve as a follow. Moreoverf, it will also be a source of advice to existing and propective banxks on how to go about their banking buiness.

1.5 Scope of study

This stusy is meant to cover Nigerian banks in general and some merger banks in oparticualr. However, although about 25 banks emerged after trhe recapitalization exercise 19 of them were productof merge banks. Consqurently, some traceablew mergng of bank can be seen between United Bank for Africa and standard Trust Bank; Ecobank plc and Oceanic international bank Plc; Access Bank plc and intercontinental Bank Plc This implies that the former is the prinicpal head while the latter is just a subsidairy company that is entitled toa holding or controlling interest. Not withstanding, this is fueling by the need to survive and be a major player in the post-consolidation eera in the banking sector Incarrying out this research work, attention would focus on nigerian banks as related to merge banks.

1.6 Limitation of study

Survey research methods shall be to gather information from respondents coencerning their opinions on the role of mergers and acquisition as a survival strategy in the Nigerian banking sector. The questionnaire to be used be carefully administered and a total of 50 respondents s would be selected for purpose of this analysis The sampling shall be done randomly such that the respondents shall cut across different departments of Nigerian banks. This could to some extent give a basis for generalization. The data should be collected from journals, text books conference papers and the internet, this will be presented and analyze using frequency table and simple percentage methods. This will make the analyze of the more concise and simple.

1.7 Hypothesis of study

The research hypothesis to be tested din the course of this study is stated below:

Ho: That merger and acquisition is not a survival strategy in the banking sector

Hi: that merger And acquisition is a survival strategy in the banking sector

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