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TOPIC : IMPACT OF CONSOLIDATION ON NIGERIAN BANKING SECTOR (CASE STUDY OF UBA)
OF THE STUDY
Nigerian banking sector have undergone important structural
and institutional changes over the last few decades
caused by restructuring and liberalization of the financial
market and have had significant implications for the
nation’s banking sector (Asogwa, 2003). The restructuring
and liberalisation of the financial market were undertaken
as one of the blueprints of the structural adjustment
programme (SAP) of the government. Overall, the banking
sector has experienced steady consolidation through
recapitalisation and mergers and acquisitions that have
resulted in fewer banks holding a greater value of the
total assets in the sector (Okpanachi, 2011).
Spearheaded by the announcement by the Central Bank
of Nigeria on July 6, 2004 about a major reform program
that would transform the banking landscape of the country,
an unprecedented process of merger and acquisition had
taken place in the Nigerian Banking Sector; shrinking
the number of banks from 89 banks to 25 banks but later
reduced further to 23 banks with the merger of some
banks like First Altantic Bank Plc and Inland Bank to
form Fin Bank Plc, Stanbic Bank Plc and IBTC to form
Stanbic-IBTC bank. The number of operating bank later
increased to 24 banks with the entering of Citibank
Nigeria Limited. With the recent merger and acquisition
of some of the nine rescued banks i.e the merger of
Access Bank Plc with Intercontinental Bank Plc; merger
of Ecobank Transnational Incorporated with Oceanic Bank
Plc; merger of First City Monumental Bank with Fin Bank
Plc, the number of banks operating in Nigeria will be
The main thrust of the 13-point reform agenda was the
prescription of a minimum shareholders’ funds
of N25 billion for a Nigerian deposit money bank not
later than December 31, 2005. The banks were expected
to shore up their capital through the injection of fresh
funds where applicable, but were most importantly encouraged
to enter into merger/acquisition arrangements with other
relatively smaller banks thus taking the advantage of
economies of scale to reduce cost of doing business
and enhance their competitiveness locally and internationally.
process in Nigeria has basically been driven by government
restructuring efforts rather than being a market-based
process (Asogwa, 2003). Consolidation has been used
as an efficient way of resolving problems of distress
among banks (Okpanachi, 2011). There have been several
cases of ‘purchase and assumption’ basically
an acquisition type of transaction which involves purchasing
the assets of a failed bank and assumption of its liabilities
(particularly deposits) by another insured bank or by
private investors (Ajayi, (2005)
OF THE PROBLEM
Extensive government intervention characterized financial
sector policies, beginning in the 1960s and intensifying
in the 1970s, the objective of which was to influence
resource allocation and promote indigenisation. Since
1987 financial sector reforms have been implemented,
encompassing elements of liberalisation and measures
to enhance prudential regulation and tackle bank distress.
Consolidation, which is an element of liberalisation
is viewed as the reduction in the number of banks and
other deposit-taking institutions with a simultaneous
increase in size and concentration of the consolidated
entities in the sector Ajayi, (2005). It is mostly motivated
by technological innovations, deregulation of financial
services, enhancing intermediation and increased emphasis
on shareholder value, privatisation and international
competition (Berger et al., 1999; IMF, 2001).
The nexus between consolidation and financial sector
stability and growth is explained by two polar views.
Proponents of consolidation opine that increased size
could potentially increase bank returns, through revenue
and cost efficiency gains. It may also, reduce industry
risks through the elimination of weak banks and create
better diversification opportunities (Berger, 2000).
On the other hand, the opponents argue that consolidation
could increase banks’ propensity toward risk taking
through increases in leverage and off-balance sheet
operations. In addition, scale economies are not unlimited
as larger entities are usually more complex and costly
to manage (De Nicoló et al., 2003). In the light
of these existing two polar views on bank consolidation,
this study shall examine the impact of the banking sector
reforms, particularly, consolidation on the Nigerian
OF THE STUDY
The study will focus on the following objectives:
1. To investigate the impact of consolidation on Nigerian
2. To discuss the effect of the consolidation exercise
on the financial structure of Nigerian banks;
3. To critically evaluate the structural and brand implications
of the merger and acquisition option in the post consolidation
4. To identify those that will benefit and lose in the
The study would examine the following questions:
1. What are the structural and brand implications of
bank consolidation in Nigeria?
2. How has the bank consolidation exercise affected
the financial structure of Nigerian banks?
3. What is the chance of survival of the consolidation
4. What impact does the bank consolidation has on the
cost of fund in Nigerian economy?
The hypothesis that would be tested in the course of
this research is stated below as:
H0: That bank consolidation does not affect the banks’
performance in Nigeria
H1: That bank consolidation affects the banks’
performance in Nigeria
OF THE STUDY
The consolidation exercise in the Nigerian banking sector
has impacted greatly on the sector and other sectors
of the economy. Although, the implications of the exercise
has not fully manifested; this study shall examine the
major immediate aftermath of the exercise. The study
shall focus on the effect of the bank consolidation
on the structural composition of the banking sector,
and financial performance of UBA.
OF THE STUDY
The recent bank consolidations, which took place in
the Nigerian banking sector, are here to stay and have
started to change the face of the banking sector beyond
recognition. After December, 2005 about thirteen banks
have ceased to exist and the new banking groups are
expected to be stronger and more viable (CBN, 2006).
No matter which approach was selected by banks within
the Nigerian financial sector, the consolidation will
have a number of effects and implications. These effects
and implications can be broken into 2 broad categories:
1. Brand implications 2. Structural implications. This
research work intends to critically evaluate these implications.
It is unprofessional to carry on the task of bank consolidation
without considering the effects and implications on
the sector. So, the significance of this study relates
to the assessment of the aftermaths of the consolidation
process in the banking sector.
OF THE STUDY
This research work shall commence by providing a background
of the subject matter justifying the need for the study
as contained in chapter one. Chapter two shall present
related literature concerning bank consolidation. The
justification for and effect of bank consolidation shall
also be discussed. The theoretical framework and research
methodology shall then be outlined in chapter three
while the data analyses and presentations shall be made
and discussed in chapter four. Concluding comments in
chapter five shall reflect on the findings of the study
and suggestions made based on the findings.
Ajayi, M. (2005) “Banking sector reforms and bank
consolidation: conceptual framework” in “banking
sector reforms and bank consolidation in Nigeria.”
CBN Bullion, Vol. 29, No. 3. April/June.
Asogwa, R. C.
(2003) “Liberalization, Consolidation and Market
Structure in Nigerian Banking” A Paper Presented
at the African Economic Research Consortium (AERC),
Berger, A. N.
(2000) “The Integration of the Financial Services
Industry: where are the Efficiencies?” FEDS Paper
No. 2000 – 2036.
Berger, A. N.,
Demsetz, R. S., and Strahan, P. H. (1999) “The
Consolidation of Financial Services Industry: Causes,
Consequences, and Implications for the Futures,”
Journal of Banking and Finance, Vol. 23, pp. 135 –
of Nigeria (2006) Press Release, January. Abuja.
De Nicolo, Gianni,
et al. (2003) “Bank Consolidation, Internationalization
and Conglomeration: Trends and Implications for Financial
Risk,” IMF Working Paper 03/158.
Monetary Fund (2001) “Financial Sectors Consolidation
in Emerging Markets,” Chapter V in International
Capital Market Report, ed. by Donal J. Mathieson and
Garry J. Schinasi (Washington: International Monetary
(2011) “Comparative analysis of the impact of
mergers and acquisitions on financial efficiency of
banks in Nigeria”. Journal of Accounting and Taxation,
Vol. 3, No. 1, pp. 1-7.
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bank consolidation, nigerian banks, nigerian banking
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