The purpose of this project is to examine the impact of merger and acquisition on bank liquidity and profitability in Nigeria. The method of analysis made use was chi-square statistical system. The analysis revealed that mergers and acquisition on banks strengthen the liquidity and profitability position of bank in Nigeria. Finally the report recommends that government should periodically through the CBN intervene in the activities of banks to avoid bank distress and failure.
TABLE OF CONTENTS
Title page i
Table of content vi
CHAPTER ONE : INTRODUCTION
1.1 Background of the study 1 – 2
1.2 Statement of the problem 3
1.3 Justification of the Study 3
1.4 Objective of the study 3 – 4
1.5 Statement of the hypothesis 4
1.6 Scope of the study 4 – 6
1.7 Definition of terms 7 – 8
1.8 Organization of the study 8
1.9 Limitation of the study
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction 9
2.1 Profile of UBA Plc 9 – 11
2.2 Review of Related literature 12 – 14
2.3 Evolution and Development of Banks on Nigeria 14 – 15
2.4 The concept of Mergers and Acquisition 15
2.5 Cause of merger and acquisition 17
2.6 Procedure of merger 17 – 18
2.7 Impacts of merger and acquisitions on bank performance 18 – 20
2.8 Problem of Merger and Acquisition 20
CHAPTER THREE : RESEARCH METHODOLOGY
3.1 Sources of data 21
3.2 Research hypothesis 21
3.3 Research design 21
3.4 Study population 22 – 23
3.5 Sample design and procedure 23
3.6 Data Collection Instrument 23
3.7 Administration of Instrument 23
3.8 Procedure of data analysis 24
CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION
4.1 Presentation of analysis of data using research questions 25
4.2 Presentation and analysis of data using hypothesis 25
4.3 Findings and Discussion 25 – 27
4.4.1 Statement of account 27
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.2 Conclusion 28
5.3 Recommendations 28
5.4 Suggestion for further studies 29
Appendix I 30
1.1 BACKGROUND OF THE STUDY
Banks are the linchpin of the economy of any country. They occupy central position in the country’s financial system and are essential agents, in the development process. By intermediating between the surplus and deficit savings’ units within an economy, banks mobilize and facilitate efficient allocation of national savings, thereby increasing the quantum of investments and hence national output (Afolabi, 2004). Through, financial intermediation, banks facilitate capital formation (investment) and promote economic growth.
The decade 1995 and 2005 were particularly traumatic for the Nigerian banking industry with the magnitude of distress reaching an unprecedented level, thereby making it an issue of concern not only to the regulatory institutions but also to the policy analysts and the general public. Thus, the need for a drastic overhaul of the industry was quite apparent In furtherance of this general overhaul of the financial system, the Central Bank of Nigeria introduced major reform progranunes that changed the banking landscape of the country in 2004. The main thrust of the 13-point reform agenda was the prescription of minimum shareholders’ funds of 25 billion for Nigerian Deposit money bank not later than December 31,2005. In view of the low financial base of these banks, they were encouraged to merge. Out of the 89 banks that were in operation before the reform, >80% (75) of them merged into 25 banks while 14 that could not finalize their consolidation before the expiration of the cleadhne were liquidated.
To a large extent, consolidation is based on a belief that gains accrue through expenses reduction, increased market power, reduced earnings volatility and scale and scope economies. However, the characteristics of the kmd of reforms induced mergers and acquisition of the banking industry creates doubts about its potentials of realizing efficiency gains. A deeper look at the 25 banks that emerged after the consolidation shows that most banks that were regarded as distressed and unsound regrouped under new names or fused into existing perceived strong banks not necessarily to correct the inefficiency in their operating system but just to meet the mandatory requirement to remain afloat and to continue business as usual.
Mergers and acquisition or any other form of consolidation may influence bank interest rates, competition and transmission mechanism of monetary policy in so far as the increase in size and the opportunity for reorganization involved may either provide gains in efficiency that bear on marginal costs or give rise to increase in market power or both together. Gains in efficiency would be obtained in moving on to greater scale of activity (if there are economies of scale). Since, the essence of any reforms is to bring greater efficiency not only in the operation but also their contributory role to the overall economy then it is important to also raise the issues whether the recent mergers and acquisitions have really impacted positively on both credit allocation and saving mobilization through reduced cost of borrowing and increased returns on savings.
Whether or not bank mergers actually achieve these expected performance gains still remain critically an empirical question. If consolidation does, in fact lead to gains then shareholder wealth can be increased. On the other hand if consolidating entities do not lead to the promised positive effects then mergers may lead to a less profitable and valuable banking industry. Mergers and acquisitions are commonplace in developing countries of the world but are just becoming prominent in Nigeria, especially in the banking industry.
In a sense, merger and acquisition simply ünplies the survival of the fittest and the best, i.e., a bigger, more efficient, better-capitalized more skilled industry It is primarily driven by business motives andJor market forces and regulatory interventions. The issues therefQre which this study intend to address are whether merger and acquisition will bring about efficient reliable and sound capital base for the bank that fully embraced mergers and to what extent can bank merger boost the confidence of the customers, the investors, the shareholders and ability to finance the real sector of the economy.
Therefore, since the importance of merger and acquisition cannot be overemphasized, this prompted the researchers interest to assess the perceived consequences of mergers and acquisitions on the banking sector in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Merger and acquisitions especially in banking industry is now a global phenomenon. In united state of American, there had been over 7,000 cases of bank mergers since 1980, while the same. Trend occurred in the United Kingdom and other European countries. Especially in the period (1997 – 1998) 203 bank mergers and acquisitions took place in the area. In many emerging market, consolidation has also become prominent as banks strive to become more competitive and resilient to shocks as well as reposition their operation to cope with the challenges of the increasingly globalize baking system for clarity, we can summarize the major problem of many Nigeria banks as follows.
- Capital deficiency is one of the problem mergers and acquisition can cause if a bank not have enough capital to stand on its own.
- Weak management and poor corporate government: These is inappropriate record and of banks and inadequate of government policy.
- Gross insider abuses: This is the result in huge non-performing insider related credit.
- Over dependency on public sector deposit: this also a problem facing the Nigeria banking sector when they over rely on customer deposit.
- Insolvency, as evidence by negative capital adequacy ratios and shareholders funds that had been completely erodes by operating losses.
- Late publication and misrepresentation of annual account: When there is no competent staffs to make proper record on the annual account records.
1.3 JUSTIFICATION OF THE STUDY
Due to the threat of distress and for the Nigerian Banking Industry to perform active development role in Nigeria economy and to be a competitive player in Africa region in global financial system.
1.4 OBJECTIVE OF THE STUDY
The following are the objective for embarking upon this project research.
- To identify the causes of mergers and acquisitions
- To analysis the possible implication of mergers and acquisitions on banking industry
- To offer possible solutions to the problems of acquisitions.
1.5 STATEMENT OF HYPOTHESIS
Towards the achievement of the above objective the following hypothesis are formulated.
- Ho: Merger and acquisition will not strengthen the capital and base liquidity of the banks.
Hi: Merger and acquisition will strengthen the capital and base liquidity of the banks.
- Ho: Merger and acquisition do not have effect on profit
Hi: Merger and acquisition do have effect on banks profit
- Ho: Merger and acquisition are not tools for expansions in banks credit
Hi: Merger and acquisition are tools for expansion in banks credit
1.6 SCOPE OF THE STUDY
The study will cover 25 banks, which Nigeria had after consolidation and focus will be made mostly on United Bank for African Plc (being a case study of this researcher). Also findings in the UBA plc will enable the researcher to make generalization of the study population.
1.7 DEFINITION OF TERMS
According Reylon, (1996) Bank is a company carrying on the business of receiving money and collecting drafts for customers subject to the obligation of honoring cheque? drawn upon them from time to time by the customer to the extent of the amount available on their current account while banker is defined as individual, partnership or corporation whole sole or predominating business that is the receipt of money on current or deposit account and the payment of the cheque drawn by and the collection of cheque paid in by a customer
According to Margaret Dilloway (200): Merger is defined as the coming together of two or more companies to form a single one. Also defined as a voluntary or enforced coming together of two or more companies by forming a single company, we can also define it as the existing business under a different or the same name with different owners.
Afolabi (2004): define acquisition as unequal companies becoming one (i.e. one is bigger than the other). It can also be define as absorption of the company to another, so that the acquired company retains it’s identify and acquired company retains it’s identify and acquired company cases to exist. Also as the purchase of a business by another company being purchase (absorbed) is wound up.
According to Oyetunde, (2005): capitalization is defines as an important component of reforms in the Nigeria banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities.
The declaration by CBN that the minimum capitalization should be #25 billion with full compliance for the banks that cannot meet up with this requirement, mergers and acquisitions will apply as a consolidation.
Capital deficiency is one of the problem mergers and acquisition can cause if a bank not have enough capital to stand on its own.
Insolvency as evident by negative capital adequacy ration and share holder’s funds that had been completely, eroded by operating losses.
1.8 ORGANIZATION OF THE STUDY
The project research contains five chapters those are arranged in sequential order chapter one, is the introduction will explained how the researcher become interested in the study and the need for the study. This section also contains many major buses heading such as statement of the problem, justification for the study, objective of the study, statement of the hypothesis, scope of the study, organization of the study and limitation of study.
Chapter two literature review, this serves two purposes in this research study (i) to provided excellent background on the area of interest and to supply a number of good lead on the study (ii) to demonstrate that I have studied the problem area and acknowledgeable about it. The review of related literature will be in an organization form with appropriate sub head to indicate the topic covered. Chapter three methodologies, this contains the following sources of data/introduction, research question and hypothesis under this, at least five question research design, study population clearly defined the target population that is being studies, sample design and procedure, data collection instrument, administration of instrument and procedure for data analysis. Chapter four presentations and interpretation, this chapter includes presentation and analysis of data using research question and general discussions. Chapter five contains summary, conclusion and recommendation.