THE IMPACT OF STRENGTHENING AND CONSOLIDATION ON THE NIGERIAN BANKING SYSTEM.

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THE IMPACT OF STRENGTHENING AND CONSOLIDATION ON THE NIGERIAN BANKING SYSTEM.

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A business combination takes place when two or more business organization come together to form a single economic unit. Business combinations; could take the form of merger and acquisition where two or more previously autonomous concerns come together under common control, there is a formation of a new company, which acquires the (assets and possible the liabilities) of two or existing business.

Merger and acquisition are the fastest ways for a business to dramatically change its position in the market place (i.e. acquisition of a wide market area). Either transaction can alter the fundamental dynamics of an organization almost over night by changing the scope or breath of products services the business renders as well as the model under which it competes.

When the board of directors of two companies agrees to come together (amalgamate) in the interest of both mergers is the right term. On the other hand, a company wanting to gain control of the another business whose board not recommend the change is said to be attempting to take over the company. Acquisition may be defined as an act of acquiring effective control by one company over an asset management of another company without any combination of companies when management of acquiring company target company mutually and willingly agree for the takeover, its called acquisition of friendly takeover embrace the practice of merger and acquisition in the years to come. This is so because the promulgation of the Nigerian investment promotion commission decree of 1995, which gave foreigners and foreign companies unfettered access to own up to 100% in Nigerian companies and bank. This decree repeated the exchange control act of 1962 and Nigerian enterprises promotion decree of 1988, which used to choke foreign investment interests. The old ratio of 60% to Nigerians and 40% to foreigner stipulated by Nigerian enterprises promotion act by 1988 changed. Armed with the new investment promotion commission decree of 1995, foreign stakeholders in Nigerian companies quoted and unquoted have been scheming and maneuvering to exchange their status for the better. The statistics from securities and exchange commission shows that the share of foreign shareholding in Nigeria quoted companies increased from 25.14% in 1994 to 25.25% in 1995. The wholly owned Nigerian Breweries Plc acquired Schweppers Nigeria Limited in 1995. In all these, the glaring fact about mergers and acquisition in Nigeria is that it is, at the moment dominated by companies that have common foreign affiliation. It appears the common affiliation enable them to reach easier agreements. On the other hand with the deregulation of the foreign exchange policy of government, more companies are expected to enter merger and acquisition.

1.2 STATEMENT OF RESEARCH PROBLEM

In a lecture deliver to a special committee of bankers by professor Charles Soludo on July 6^th 2004 titles “consolidating the 21^stcentury, says the Nigeria is the most populous black nation with the estimate population of 137 million and she is one of the oil producing countries in the world. However, Nigeria economy still does not have infrastructure, to support large economic activities. The banking sectors has been criticized for:

High leading rate
Sharp practice in the forex market
Low capital base
Most banks make profit through unethical means which is their core banking business.

It is in the view of this, the verdict of professor Charles Soludo, Governor of Central Bank of Nigeria on 6^thof July 2004 that all Nigeria bank are to beef up their capital base from N2 billion to N25 billion by the December 2005 will definitely help in this regard.

The banking system however has continued to be characterized by a number of structural problems some of which include:

Low capital base: the average capital base of Nigeria banks is us and 10 million, which is very low compared to that of banks in other developing countries similarly the aggregate capitalization of Nigerian banking system was N2.67 billion a t the end of December 2003 is grossly low relative to the size of the Nigeria economy.
A large number of small banks with relatively few branches dominated by a few bank out of 89 banks as at December 2003, bank controlled 50.10% of the aggregate assets; 51.49% total deposit liabilities ands 43.27% of the aggregate credit.
Weak corporate governance
Insolvency
Over-dependence on public sector deposit and foreign exchange trading.
The neglect of small and medium scale private savers. The implication is that its financial intermediate function has become impaired while depositors confidence has materially wanted. It was on the basis of this concerns that the CBN Governor concerned a special meeting on the July 16^th 2004 to unfold a reform packages for the resuscitation of the Nigerian banking system.
The present situation in Nigerian economy makes it mandatory for the pooling together of resources in order to avoid all problems mentioned above. Merger and acquisition are valuable way to harness the synergies of similar organization.

1.3 OBJECTIVES OF THE STUDY

The aim of this research work is to bring to light the comparative analysis of merger and acquisition in Nigeria banking sector.

To show the benefit of merger and acquisition on Nigeria’s economic development.
To investigate the performance of bank prior and after merger and acquisition.
To investigate into problems faced by banks in mergers and acquisition.
To investigate into Nigeria’s actual experience during merger and acquisition.
To investigate ways in which merger and acquisitions could be attractive to the Nigeria companies.

1.4 RESEARCH QUESTIONS

What benefit has been achieve in terms of economic development in Nigeria under merger and acquisition?
How have banks that go into merger and acquisition preformed prior and after merger and acquisition?
How has the quality of financial products available to customers been after the mergers and acquisition?
What are ways to make merger and acquisitions more attractive to Nigerian companies?
What are the problems militating against merge and acquisition is Nigeria?

1.5 SCOPE OF THE STUDY

The study on comparative analysis of merger and acquisition in Nigerian banking sector will be carried out within the scope of platinum bank Nigeria limited and Habib bank international (Bank PHB) prior from 2003 to 2005 and 2005 to 2007. Hence, information data will apply mainly to the organization fixed assets and liability.

1.6 SIGNIFICANCE OF THE STUDY

In this study those that will benefit mainly are they:

Banks: the study intends to come up with the means of survival, growth for this present and future bank in Nigeria by creating awareness of the research vice seminars, workshop and symposia.
General public: the knowledge of merger and acquisition and other business combination in the business community as a way out of financial distress will enhance the nations economic development in time of economic downturn and recommendation made will be of immense importance to the bank under study.
Shareholders: the shareholders will also gain from this consolidation exercise through effective allocation of resources, which would equally increase their dividends and risk reduction arising from improved management.

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