CHAPTER ONE

INTRODUCTION

1.0    BACKGROUND OF THE STUDY

The pre-merger consent for Access Bank Plc, Equity Bank Plc, Gateway Bank Plc and global Bank Plc as one consolidated bank was granted in April 2005, while the CBN’s approval in principle for the merger came in September 2005.

The enlarged Access Bank Plc took off on October 10 2005. On this day, the signages and other brand element of the legacy bank collapsed into one single nomenclature – Access Bank Plc, in a seamless manner.

The bank achieved one of the highest capital base in Nigeria N51.7 billion, a total asset base of N354 billion, a total deposit of N220 billion and over 186-branch network across the country after the merger exercise.

On October 17, the shares of the new mega bank were listed on the stock exchange.

In April 2007, the governor of the Central Bank of Nigeria, Professor Charles, Chukwuma Soludo at the opening/launching ceremony of the Zenith Bank (UK) subsidiary, predicted that by the end of 2006, about ten Nigerian banks would have a market capitalization ranging between $2 billion and $5 billion each. The governor also noted that, “the Nigerian banking system is the fastest growing in Africa and should by 2020 be the hub in Africa”. Soludo also said the CBN is ever committed and it is playing a major role in the Nigerian financial system reform by stabilizing the exchange rate and reducing inflation to single digit to enable business grow and that the Nigerian banks would have the financial muscle and capital to lead the way venturing into the open banking shops outside Nigeria, expanding banking and financial operation into African regions and extending into the United Kingdom and other parts of Europe as well as United States. These feat was engendered through the 2005 banking consolidation exercise.

Today, Nigeria can boast of truly universal banks and financial supermarkets. This is a core benefit the consolidation in the industry, which has reduced the 89 banks (as at 2005) to 25 strong banks in the county, as at the 1^st January 2006 commencement of the new banking era.

1.1    PRE-CONSOLIDATION BACKGROUND OF THE BANKING INDUSTRY

On February 15 2007, Lucky Fiakpa, a self styled financial/ economic consultant working with THISDAY business journal noted that prior to the commencement of the consolidation programme, the Nigerian banking industry had remarkable features of the market concentration. The top ten out of the 89 banks the controlled more than 50 percent of the aggregate assets, more than 51 percent of the total liabilities and more than 45 percent of the aggregate credit.

According to governor of the CBN, small-sized, marginal players with very high overhead cost generally characterized the industry. Most banks in the country had a capital base of less than $10 million. Professor Charles Chkwuma Soludo (December 2006) recalled that, “the Nigerian financial industry was dominated by the banking system, small and fragile relative to the size and sophistication of the economy, and relative to comparator countries”. He added that the Nigerian financial system remained under developed before the regulatory-induced consolidation exercise. “All the Nigerian 89 banks put together makes up the 4^th bank in South Africa in 2003, in terms of capital. The capital base of the largest bank before reform was about US $526 million. Soludo further noted that this condition also constrained them in terms of effective participation in big-ticket transactions, many of them could not meet clients’ request for funding, particularly in sectors like telecommunication, maritime as well as oil and gas. Another obvious problem which the consolidation was to address included heavy reliance on government patronage.

1.2    STATEMENT OF THE PROBLEM AND ANALYSIS

Today, the Nigerian financial system can boast of buoyant and strong 25 banks with may having international presence and operations outside the shores of Nigeria. This is as a result of the consolidation exercise which has steered the development of the industry with multiplier effect on the various aspects of the Nigerian economy. Thus, needless to say that the consolidation of the banking industry has positively affected favourably on all the aspects of the economy.

This study will take an expansion review of how the banking industry consolidation has affected the other aspects of the various sector of the economy, such as:

i.             Agriculture industry

ii.           Aviation industry

iii.          Oil and gas industry

iv.          Telecommunication industry

v.            Educational sector

vi.          Insurance industry

vii.         Media and advertisement industry

viii.       Entertainment industry

ix.          Sport sector

x.            Tourism sector

xi.          Housing and real estate sector

xii.        Transportation

xiii.       Capital market/ the Nigerian stock exchange

xiv.       The investing public as well as the general depositors

xv.         The shareholders and core investors

Also an extensive review will be taken at the external effect it has generated, vis-à-vis

i.             Inflow of foreign direct investment (FDI)

ii.           International rating and ranking

iii.          Global finance institutions’ vote of confidence

iv.          International expansion and operational offices

v.            International bulk-money deals etc

1.3    PURPOSE OF THE STUDY

This study is designed to highlight the benefits that has accrued to the overall economy as a result of the reforms and consolidation of the banking industry. The strength and capabilities of the post banking consolidation can never be over emphasized. This is because the banking industry is the backbone of any economy.

The essence of this study is to evaluate the effects of the strong banking industry after consolidation on the overall economy as a key driver of economic development.

1.4    RESEARCH QUESTIONS

As clearly stated in the purpose of the study, attempts will be made at giving analytical review in the effects of the consolidation on the Nigerian economy.

This study will attempt to answer the following questions:

i.             What was the level of performance of banks before the consolidation?

ii.           Were Nigerian banks able to compete favourably with contemporary banks on the international scene before consolidation?

iii.          How many Nigerian banks had international standard ratings and rankings before consolidation?

iv.          Has consolidation been favourably accepted in the banking industry?

v.            Has consolidation improved the strength and performance of the Nigerian banks?

vi.          What effect has consolidation of banking industry had on the Nigerian economy?

1.5    HYPOTHESIS

1.       H₀: The banking industry did not need improvement before the pre-consolidation era.

          H₁: The banking industry was in dire need of improvement before the pre-consolidation era

2.       H₀: The banking industry consolidation has not positively affected the Nigerian economy.

          H₁: The banking industry consolidation has positively affected the Nigerian economy

1.6    SIGNIFICANCE OF THE STUDY

This study is of great importance to the reader as it takes an in-dept view in a most practical approach at examining the repercussion effect of the consolidation of the banking industry on the overall economy. It is hoped that readers will be enlightened and educated on the consolidation and reforms of the banking industry.

1.7    SCOPE AND LIMITATION OF THE STUDY

This research study focuses on the performance of the banking industry during the pre-consolidation era and post-consolidation as well of the effects on the performance of the Nigerian economy.

However, the study is limited to the approaches and desired results and effects of the consolidation on the performance of the economy observed between January 2006 till date (September 2008).

1.8    DEFINITION OF TERMS

i.             Banks: Banks are financial institutions in the economy that accepts deposit from the public and capable of giving loans.

ii.           Industry: An industry is a group or sector comprising of many small units or forms of similar operations and activities.

iii.          Consolidation: Consolidation is the process of making an entity stronger by pooling resources together.

iv.          Reform: Reform is the act of improving a system or an organization.

v.            Governor: A governor is a person who is the official head of an organisation, territory, region or institution.

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