MERGERS AND ACQUISITION IN THE NIGERIA BANKING INDUSTRY
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1 Background to Study
1.2 Statement of the Problem
1.3 Aim and Objectives of the Study
1.4 Significance of the Study
1.5 Scope of the Study
1.6 Limitation of the Study
1.7 Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Reforms
2.3 Mergers
2.4 Financial Evaluation of Mergers
2.5 Legal Framework of Mergers in Nigeria
2.6 What Levels of Approval or Acceptance are Needed
2.7 How Relevant is the Target Board
2.8 Challenges of Corporate Governance for Banks Post-Consolidation
2.9 Code of Corporate Governance Practices for Banks Post-Consolidation
2.10 Organizational Structure
2.11 Quality of Management
2.12 Determinants of Bank’s Performance in an Economy
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1 Introduction
3.2 Data Analysis
3.3 Model Specification
3.4 Source of Data
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1 Introduction
4.2 Statistical Analysis
4.3 Econometric Analysis
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND
CONCLUSION
5.1 Summary of Findings
5.2 Recommendations
5.3 Conclusion
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Banks are vital to the economy of any country’. They occupy a 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 the facilitate efficient allocation of national savings, thereby increasing the quantum of investment and hence national output (Afolabi 2004).
Consolidation primarily has been the major policy instrument adopted in correcting deficiencies in there financial sector. The rationale for domestic consolidation is indisputable as an early view was that it makes banking more cost efficient. Studies on efficiently have since indicated considerable potential for improvement in cost efficiency through merger.
While the impact of merger on bank performance has been harder to discern. Market induced consolidation normally holds out promises of scale economies, gains in operational efficiency, profitability improvement and resource maximization.
The outcomes have however, not totally confirmed those supposed benefits and they have verified across jurisdiction especially when compared with the particular pre-consolidation expectations. Whatever the potential the researches conducted so far on the effects of bank merger have not found strong evidence that on balance, merged banks improve cost efficiency relative to other banks. This does not mean that many mergers, including those of some large banks, have fail to lead to significant gains in cost efficiency but that the outcome of mergers for those banks tend to be offset by problems encountered in these mergers and that many other banks have improved cost efficiency without merging.
This study will attempts to ascertain the effect of mergers on bank performance and to adequately answer the research questions data will be divided into pre-merger and post merger years.
1.2 STATEMENT OF THE PROBLEM
Ascertaining the empirical relevance of the implications of financial reforms like mergers on banking operational efficiency and general performance of the banks is an important step in assessing the short run cost of overall economic reforms.
It is therefore of great importance to know what the effect of financial reform would be first, to the performance of the Bank and second, the economy as a whole.
I faced with these set of possible repercussion, it is work an evaluation of the merged/Acquired banks to find out if they have actually obtained gains in efficiency of their financial intermediating roles. This study aims to fill a gap, as the handful of empirical studies in this area is foreign based. In view of the importance and intricacies surrounding merge and acquisition, this research work has attempted to proffer solution to the problems put in question form as stated below.
1.3 AIM AND OBJECTIVES OF THE STUDY
The main objectives of this study essentially include the following:
• Ascertaining the relevance of the implications of financial reforms on banking operational efficiency.
• Ascertaining the relationship between value after merger and liquidity of Banks.
• Ascertaining the effect of mergers on banks performance.
• Ascertaining the relationship between value after merger and bank capital
• Estimating the relationship between value after mergers and bank total asset
STATEMENT OF RESEARCH HYPOTHESIS
Ho: There is no relationship between value after mergers and the liquidity of Banks.
Hi: There is relationship between value after mergers and the liquidity of Banks.
Ho: There is no relationship between value after mergers and bank capital
Hi: There is a relationship between value after mergers and bank capital
Ho: There is no relationship between value after mergers and total bank assets
Hi: There is relationship between value after mergers and total bank assets
1.4 SIGNIFICANCE OF THE STUDY
Banks like any other corporate utilities have a sole objectives the maximization of shareholders health. Usually, this is reflected in increased share prices of quoted banks, but in Nigeria where capital markets has not met the weakly formed hypothesis of market efficiency where information asymmetry, taxes and transaction costs are high, it is expected that firm value can be enhanced through equity, borrowed capital or mergers and acquisitions.
Thus, the enhanced capitalization of banks should provide an opportunity to train the desired optimal structure for the purpose of increasing market value and shareholders wealth.
The motive behind this study is to establish the effects of merger and acquisition on banks performance post-merger.
1.5 SCOPE OF THE STUDY
The scope of the study shall be restricted to all the commercial banks in Nigeria.
For the purpose of purpose of methodology and analysis three banks which have merged or engaged in acquisition in the recent past will be randomly selected. Analytical data for the purpose of this study shall be secondary which shall cover years 2001-2010. The use of this range of years imperative to the study owing to the significant number of minimum capital requirement policies formulated and implemented in these periods which led to a significant number of mergers and acquisition.
1.6 LIMITATION OF THE STUDY
Secondary data such as the annual financial reports are prepared using different accounting and management policies, accounting years and different data. Thus, they are accorded different interpretations by users of such reports.
Also, according to Ibrahim (2010:15) limitations are fact ors beyond our control which tend to impede the accomplishment of the objectives. In he light of this, the following are the limitations of this study:
• The sample size may be too small in relation to the entire population.
• Imprecise measurements of variables
• The sampling method adopted is not a census, because we are not researching everyone in the population.
1.7 DEFINITION OF TERMS
Banks: A bank can be defined as a corporate person who accepts money on any form of existing account (current, savings, and fixed deposits) and pays cheques or collect cheques on such accounts on demand from customers.
COST – EFFICIENCY
All policies taken to ensure that quality services are delivered at the least cost possible. It minimize cost.
DEMERGER
The process of splitting out company into two, the second often being a separately listed stock company.
DELUTIVE MERGERS
This is the direct opposite of accretive mergers. It is a situation in which the acquiring company’s E.P.S. descreases.
FUNDING RISK
This is the inability to replace net outflows of funds either through withdrawals of retail deposits or now renewal of wholesale funds.
GOVERNMENT INDUCED MERGER
In this situation, mergers take place because policies. In other to meet these policies, mergers become the options.
HERFINDAHL INDEX
A device used to analyse the impact of merger on a market.
HORIZONTAL MERGERS
Occurs when the merging companies produce similar products in a similar industry.
MARKET INDUCED MERGERS
These mergers are not forced by government policies rather the occur because of the need to keep up with changes in the market place.
MERGER SUB
This is used to describe the contract vehicle for achieving a merger.
NON-PERFORMING LOANS
Are loans that are unable to meet principal and/or interest repayment obligations in full and thus may be doubtful for collection.