ABSTRACT
Banks in Nigeria operate in a dynamic environment affected by myriad of factors. These factors affect the industry in variety of ways creating both opportunities for the strong ones and distress for the feeble banks. However the need to ascertain the effect of merger and acquisition on the growth of Nigerian banks gave rise to this research. In analyzing the above research, the research adopted the following objectives; to examine the effect of merger and acquisition on the profitability of Banks in Nigeria, to evaluate the effect of merger and acquisition on return on asset of Banks in Nigeria and finally to determine the effect of merger and acquisition on return on equity of Banks in Nigeria. The research adopted the use of SPSS to analyze the objectives. Findings reveals that there is a significant different in profit after tax of the bank before and after acquisition, there is a significant change in return on asset of the bank before and after merger and acquisition and finally there is a significant effect of Merger and acquisition on return on asset of Banks in Nigeria. Sequel to the findings and conclusion, the researcher makes the following recommendations; Merger/acquisition is a strategic tool that must be cautiously applied and implemented. The maturation period of the merger must be allowed so that the financial records of the intending firms coming together can be properly scrutinized by the board of directors of each firm and the regulatory agencies.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 2
1.3 Objectives of the Study 3
1.4 Research Questions 3
1.5 Research
Hypotheses 4
1.6.
Significance of the Study
4
1.7 Scope of the Study 5
1.8 Definition of Terms
5
CHAPTER TWO
REVIEW
OF RELATED LITERATURE
2.1 Conceptual Framework 6
2.1.1 The Concept of Merger and Acquisition 6
2.1.2 The Rationale for Merger and Acquisition. 7
2.1.3 Classification of Merger and acquisition 9
2.1.4 Benefits of Merger and acquisition 9
2.1.5 Effects of Merger and acquisition 10
2.2
Theoretical Framework 11
2.2.1 Bank concentration Theory 11
2.2.2 Pro-concentration theory 12
2.2.3 Pro-deconcentration theory 12
2.2.4 “Eat or be Eaten” theory of Merger and
acquisition and acquisitions 13
2.2.5 Agency Theory 15
2.3 Empirical
Review 16
CHAPTER THREE
METHODOLOGY 22
3.1 Research
Design 22
3.2 Area of
Study 22
3.3 Source
of Data 22
3.4 Population of the Study 22
3.5 Sample Size 22
3.6 Data
analysis Technique 22
CHAPTER
FOUR
DATA
PRESENTATION AND ANALYSIS 24
4.1 DATA PRESENTATION 24
4.2 Test of Hypothesis 24
4.3 Discussion on Findings 28
CHAPTER
FIVE
SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS 30
5.1 Summary of Findings 30
5.2 Conclusion 30
5.3 Recommendations 30
REFERENCES
LIST OF TABLES
Data Presentation 26
One-Sample Statistics 27
One-Sample Test 27
One-Sample Statistics 28
One-Sample Test 28
One-Sample Statistics 29
One-Sample Test 29
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Banks in Nigeria operate in a dynamic
environment affected by myriad of factors. These factors affect the industry in
variety of ways creating both opportunities for the strong ones and distress
for the feeble banks (Umoren, 2017).
However, the wave of banks’
consolidation that recently swept through the banking sector started after the
announcement by the Central Bank of Nigeria (CBN) on behalf of the federal government of Nigeria,
that banks in Nigeria should beef up their minimum capital base to N25 billion
on or before 31st December, 2005. As the termination date for banks’
consolidation workout drew nearer, desperate efforts were made by the banks to
meet the minimum capital fixed by the CBN before the expiration date. There
were many options available towards solving the challenge of recapitalization.
A bank could among other options merge with others or acquire smaller ones or
volunteer to be acquired by others or do it alone or by combination of two or
more of the options (Okafor, 2014). Nevertheless, the strategies adopted by
majority of these banks were mergers and acquisitions. These mergers and
acquisitions brought about a fusion of the 89 banks in the country into mega
banks units of only 25. According to CBN report, 25 banks emerged at the end of
the consolidation exercise from the previous 89 banks, while 14 banks were
liquidated (Godwin, 2015).
According to Adeneniyi (2014),
Mergers and Acquisitions are commonplace in developed countries of the world
but are just becoming prominent in Nigeria especially in the banking industry.
Before the recent consolidation, the Nigerian banks have not fully embraced
mergers and acquisitions as expected because of their cultural background in
terms of assets ownership, greediness, shame, fear of what people will say and
lack of proficiency required for mergers and acquisitions, among other reasons.
The issue of mergers and acquisitions in banking industry started in October,
2003 under the past president of CBN. Although the CBN rolled out incentives to
encourage weaker banks adopt mergers and acquisitions. The incentives included
concessionary cash reserve ratio on a case- by -case basis for a period of two
years to the newly restructured banks, conversion of overdrawn positions of
weak banks to long-term loans with concessionary interest and the acquired
banks could be given up to 24 months grace period for complying with the
minimum liquidity ratio requirement to enable it settle down as a newly
recapitalized/restructured bank. However, most of the feeble banks were
unwilling to listen until the new order on July 6, 2004 (Famakinwa, Oduniyi,
Aminu, Obike and Ugwu 2014).
The situation changed from July 6,
2004 as many banks have either merged with or acquired other banks. The increase in awareness and scheme is due to a number of reasons such as threat
of distress, regulatory driven environment, foreign inducement, persuasion from
regulatory bodies and economic benefits of mergers and acquisitions. The most
common of these factors that is responsible for the growth of mergers and
acquisition in Nigerian Banks is regulatory factor. Thus, mergers and
acquisitions as consolidation tools have become a near permanent feature of our
financial lexicon after July 6, 2004 (Ewubare, 2004). Based on the above
background, the research work seeks to examine the impact of merger and
acquisition on the financial performance of banks in Nigeria.
1.2 Statement of the Problem
Over the years banks in Nigeria have experienced
serious financial crisis and failure. This has led to distrust and defeat of
expectation and objectives. However, as a mechanism of achieving profit
maximization and cost minimization anchored on economic of large scale, merger
and acquisition has been widely adopted.
The relationship between merger and acquisition and
bank performance has been attracting much attention, partly because of
heightened interest in what motivates firms to merge and how merger and
acquisition affects performance or efficiency. However, According to Berger
(2000) merger and acquisition may reduce industry risks, through the
elimination of weak banks and create a better diversification opportunities.
According to Pilloff and Santomero (2017), there is
little empirical evidence of merger and acquisition in achieving growth or
other important performance gains. Also,
evidence supporting merger and acquisition to achieve
costs saving and efficiency gains is sparse (Kwan, 2015).
Towards this end, Beitel (2013) found no gain effect due to merger and acquisition
Furthermore, merger and acquisition and in the banking
sector was greatly witnessed in Nigeria within the years 2005-2011 during the
administration of Prof Charles Chukwuma Soludo as the governor of CBN. All
banks were compelled to a re-capitalization of their deposit with the CBN to
the tone of 25billion Naira. The amount was unrealizable for some usually
improved then banks and some that realized saw more reasons to consolidate
their capital in order to meet the policy of re-capitalization with ease. This
led to the merging of so many commercial banks.
Objectively, the essence of this re-capitalization was
to improve banking service performance and trust on the banking industry. Then,
merger and acquisition was only adopted by bank to meet the recapitalization
demand of CBN. But the question remains, has this actually improved or
discouraged the performance of banks in Nigeria? If it has to what extent and
magnitude bearing in mind that the objective of CBN was to improve stability
and performance in the banking sector through recapitalization but the
objective of the banks was to meet the CBN re- capitalization demand.
Overall of all
these studies provide
mixed evidence and
inconclusive evidence which
appear counter intuitive
aided in banking globalization efficiency and many fail to show a clear
relationship between merger and acquisitions and financial performance.
Therefore, this work seeks to examine the effect of
merger and acquisition on the performance of banks in Nigeria.
1.3
Objectives of the Study
The main objective of the research is to ascertain the
effect of merger and acquisition on the performance of banks in Nigeria.
Specifically, the research seeks to;
i.
examine the effect of
merger and acquisition on the profitability of Banks in Nigeria.
ii.
evaluate the effect
of merger and acquisition on return on
asset of Banks in Nigeria
iii.
determine the effect of
merger and acquisition on return on equity of
Banks in Nigeria.
1.4
Research Questions
The following research questions are formulated for
the study:
i.
To what extent does
merger and acquisition have effect on the profitability of Banks in Nigeria?
ii.
How does merger and
acquisition affect the return on asset of Banks in Nigeria?
iii.
What is the effect of
merger and acquisition on return on equity of banks in Nigeria?
1.5
Research Hypotheses
H01:
Merger
and acquisition have no significant effect on the profitability of Banks in
Nigeria
H02:
Merger
and acquisition have no significant effect on return on asset of Banks in
Nigeria
H03: There is no
significant effect of Merger and acquisition on return on asset of Banks in
Nigeria
1.6. Significance of the Study
The
study which seeks to examine the effect of merger and acquisition on the
performance of banks in Nigeria will be of immense benefit to the following
groups:
i.
POLICY
MAKERS
Here
the policy makers are the central banks which are saddled with the
responsibility of achieving economic stability and growth. To this extent,
findings in this study shall enable the Central Bank of Nigeria (CBN) make
policies that would enhance economic growth in relation to merger and
acquisition of banks to enhance their strength and profit level.
ii.
INVESTORS
AND OTHER ECONOMIC AGENTS
This study shall
give an insight to the to investors by letting them know the advantages and
benefits that accrue as a result of merger and acquisition so as to enable them
make proper decision as it relates to investment.
iii.
ACADEMIA
This study shall
guide future researches in formulating research questions and hypotheses. More
so, literature generated in the study will also help other researchers to
develop appropriate empirical literature and theoretical framework of their
study.
Finally, future researchers will benefit from this
research work because, it will serve as reference point for them that will want
to research more on the topic.
1.7 Scope of the Study
The study will cover a period of 10 years from
2008-2017. This is to enable the researcher to have a comprehensive coverage of
the period of mergers and acquisition which occurred during that period.
1.8 Definition of Terms
Capital
base: - This is a term used to describe the funds that a company generates as
a result of an initial public offering, as well as any additional offerings
that the corporation makes at a later time plus any retained earnings generated
by the business.
Risk: - This is
exposure to damage or financial loss.
Re
Capitalization: This means significant adjustment of a firm’s capital
structure due to issuance of new shares, re organization after bankruptcy
proceedings
Consolidation: This means
combining assets, equity, liabilities and operating accounts of parent firm and
its subsidiary into one financial statement.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment