Implication of Merger and Acquisition and Their Effect on Bank’s Performance Emphasis on United Bank for Africa
CHAPTER ONE
OBJECTIVES OF THE STUDY
The main objectives that made the researcher go to this topic are as follows:
- To find out the effect merger will have on the productivity of Nigeria banks
- To find if merger will reinstate public confidence on Nigeria Banks.
- To find if bank merger succeeded in curbing bank failure in Nigeria.
- To find if merger and acquisition will improve the services rendered by Nigerian banks.
- To find out if merger and acquisition will facilitate economic growth and stability in Nigeria.
- To find if bank merger and acquisition will affect other sectors of the Nigerians economy.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
The banking system is the engine of growth in any economy, given its function of financial intermediation. Through this function, banks facilitate capital formation, lubricate the production engine turbines and promote economic growth. However, banks’ ability to engender economic growth and development depends on the health, soundness and stability of the financial system. The need for a strong, reliable and viable banking system is underscored by the fact that the industry is one of the few sectors in which the shareholders’ fund is only a small proportion of the liabilities of the enterprise. It is, therefore, not surprising that the banking industry is one of the most regulated sectors in any economy. It is against this background that the Central Bank of Nigeria, in the maiden address of its former Governor, Prof. Charles Soludo, outlined the first phase of its banking sector reforms designed to ensure a diversified, strong and reliable banking industry. The primary objective of the reforms is to guarantee an efficient and sound financial system. The reforms are designed to enable the banking system develop the required resilience to support the economic development of the nation by efficiently performing its functions as the fulcrum of financial intermediation (Lemo, 2005). Thus, the reforms were to ensure the safety of depositors’ money, position banks to play active developmental roles in the Nigerian economy, and become major players in the sub-regional, regional and global financial markets. According to Enyi (2007), the grand objective in the banking sector reforms was to reengineer and fast-track a system that will engender confidence and power a new economy. But whether this objective can be achieved will depend to a large extent on how the reform is implemented. Going by the main focus of the reform, banks recapitalization and consolidation stands out. The main method by which this aspect was achieved was by asking individual banks to raise their capital base to a minimum of N25Billion or in the alternative merge with others. The merger option thereafter became the most feasible solution as only Zenith Bank Plc was able to reach this level out of the entire 89 banks. The question remains; how viable are these mergers or business combinations? Business combinations result as spin-off effects from corporate restructuring. Owing to the ever changing nature of global business environment culminating from rapid interactive economic movements as driven by innovations and obsolesces in technology, corporate restructuring had become a regular exercise in capitalist and semi-capitalist economies. Corporate restructuring in the words of Pandey (2005:672) refers to changes in ownership, business mix, assets mix and alliances with a view to enhance the shareholders value. The most common forms of business combination are mergers and acquisitions. The Central Bank of Nigerian’s resolve to carry out reforms in the banking sector was borne out of the past of the nation’s banking industry. Between 1994 and 2003 a space of nine years, no fewer than 36 banks in the country closed shops due to insolvency. In 1995 four banks were closed down. But 1998 may go down well in history as the saddest year for the banking industry as 26 banks closed shops that year. Three terminally ill banks also closed shops in 2000. In 2002 and 2003 at least a bank collapsed. The failed banks had two things in common – small size and unethical practices. Of the 89 banks that were in existence as at July 2004, when the banking sector reforms were announced, no fewer than 11banks were in distress. According to the CBN, between 69 and 79 of the banks were marginal or fringe players. In fact, an assessment of the Nigerian banking industry shortly before the pronouncement of the consolidation agenda shows that while the overall health of the system could be described as generally satisfactory, the state of some banks was less cheering. Specifically, as at the end of March 2004, the CBN’s ratings of all the banks, classifies 62 as sound/satisfactory, 14 as marginal and 11 unsound, while two of the banks did not render any returns during the period. The fundamental problems of the marginal and particularly, unsound banks according to Soludo (2004) have been identified to include persistent illiquidity, poor assets quality and unprofitable operations. He further summarises the major problems of many Nigerian banks to include weak corporate governance, gross insider abuses, insolvency, weak capital base and overdependency on public sector deposits. Banking crisis usually starts with inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention mechanisms may occur in the form of consolidation (mergers and acquisitions), recapitalization, use of bridge banks, establishment of asset management companies to assume control and recovery of bank assets, and outright liquidation of non redeemable banks. Bank consolidation, which is at the core of most banking system reform programmes, occurs, some of the time, independent of any banking crisis. Irrespective of the cause, however, bank consolidation is implemented to strengthen the banking system, embrace globalization, improve healthy competition, exploit economies of scale, adopt advanced technologies, raise efficiency and improve profitability.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought examine the implication of merger and acquisition and their effect on banks performance with emphasis on UBA
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the study implication of merger and acquisition and their effect on banks performance. 200 staff of united bank for Africa was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to examine the implication of merger and acquisition and their effect on banks performance.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of merger and acquisitions among banks in Nigeria.
Summary
The prominent question about any mergers and acquisition research is that “is there any significant positive impact on the merging entities?” this is what any research on merger and acquisition seeks to answer in the long run. Mergers and acquisition do not waste resources, but rather, they are the catalyst for the creation of synergy. This research has established that bank mergers and acquisition has increased shareholders‟ funds, public confidence as well as financial stability and operational efficiency of the banks that engaged in the corporate restructuring exercise. As a result of this research it has been deduced that shareholders, creditors and depositors who may be referred to as the bank stakeholders play key roles in strengthening the banks‟ capacity to attract funds at lower costs thereby enhancing their liquidity positions. This study has brought about answers to the main research question which proves that mergers and acquisition has a positive impact on the performance of commercial banks and this attested to the fact that the post-merger periods of banks outweighs the pre-merger periods. More importantly, merger and acquisition has helped to curtail the problem of banks‟ insolvency and illiquidity which are characterized by the bank‟s ability to trade with their customer‟s deposits in the nonpreferred Government sectors which are as high yielding as the commercial sector in the country
Conclusion
The reforms in the Nigerian banking sector have greatly improved Nigeria economy and encouraged consolidation of banks through merger and acquisition. Merger and Acquisition is a strategy used by the regulatory bodies in Nigeria to save the banking sector from liquidation. This strategy brings about the consolidation between United Bank of Africa Plc. (UBA) and Standard Trust Bank of Nigeria Ltd. Bank with merger in its programs should consider both economic and social input of merger. Also the interest of owners, creditors, employees, government, cost and benefits on interest should be taken into consideration before undertaken merger transaction. In furtherance, there should be proper enlightenment of the public as regards the implication and benefits of Merger and Acquisition by the Securities and Exchange Commission (SEC) as the apex regulatory body. The legal and statutory requirement and the bureaucratic process should be also made feasible without abuse. Finally, the macro-economic environment must be made conducive for the operations of the market. Policy inconsistency must be kept to the minimum level while the on-going liberalization of the financial sector must continue to enhance access to investors’ funds and promote overall investment process.
Recommendations
The objective of this research work is to evaluate or review the effect of merger and acquisition strategy in Nigerian banking industry. The following are therefore recommended: Firstly, Merger and Acquisitions is the only solution to Nigerian bank liquidation thus improving the competitive power of the banks. It is recommended that the 53 government and regulatory authorities should monitor the activities and encourage a free market economy of merging banks to be able to extend their operations to the highest level in the economy. The government should stands as checks and balances to non-compliance of their laid down regulations. Secondly, The Pronouncement of merger and acquisition option recently by the regulatory organs such as Central Banks of Nigeria (CBN), Securities Exchange Commission (SEC) and Nigeria Deposit Insurance Corporation (NDIC) is highly appreciated for improving the profitability of Nigerian banks. Merger and Acquisition make the bank to have the ability to muscle with other international bank and withstand the rigors of doing business on the international market. Thirdly, it also recommended that Merger and Acquisition should be given a pride place in Nigeria economy as it remains one of viable tools for economic growth and sustainable development. Merger and Acquisition assist to look how debt financing will be used and their level of competitiveness between the required banks. The viability of the banks is much important for growth of the national economy and sustainable development. Lastly, it was revealed in this study that Merger and Acquisition cannot pose any negative implications in the banking sector. Merger and Acquisition ensure sanity and stability in the sector and the economy at large. The implementation of merger and acquisition really improve management efficiency in banking industry
Reference
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