TABLE OF CONTENTS
Table of content
of the study
of the problem
of the study
of the study
of the study
of the study
roles of bank in Nigerian economy
nature of bank distress.
of bank merger
of value in bank merger
of merger ad acquisition for bank
for the establishment of deposit insurance scheme
of the corporation
of deposit insurance in Nigeria
of data collection
of data analysis
background of NDIC
THE ANALYSIS OF THE OPERATIONAL
ACTIVITIES OF THE NDIC
activities of the corporation
activities of the corporation
4.3 Assessment of the effectiveness of NDIC’S
role is merger and acquisition in bank distress resolution
and data testing
1.1 BACKGROUND TO THE STUDY
advent of banking system in Nigeria dated back to 1892 when the Africa banking
corporation opened its first branch in Lagos. as a result of initiative taken
by Messer Elder Dempster and co: a shipping firm based in Liverpool the main
motivation for opening the bank was to finance the shipping business of Elder
Dempster and company that operated between Liverpool and west coast of Africa;
this led to the format of the British
bank of west Africa in 1893 with N10,000 capital was later increased to N100,000 capital, which
was better increased during the same year. It was registered in London as a
limited in 1894 and started operation in Lagos in the same year. Later, the
responsibility of operating the West Africa currency board was entrusted to the
bank. The bank as an agent of the board, received, stored and issued the west
Africa silver coins in exchange for sterling coin or London drafts.
branches were opened in major west Africa cities like Accra, Freetown, etc. British
bank of West Africa opened it second Nigeria branch in old Calabar in 1970.
18999, another bank called Anglo-Africa bank was established in old calabar by
the Royal Niger Company (now united Africa company UAC) to complete with
British bank taken over of BBWA in 1921 due to the fierce competition and the
monopoly of the importation of sliver
from the Royal mint enjoyed by BBWA.
British bank of West Africa changed its name to bank of West Africa in 1957,
Africa Ghana gained her independence. In 1965, the bank of West Africa further
assumed the name standard bank, having merged with the stand chartered bank of
London. Later in 1979, the name of the bank was change to first bank of Nigeria limited. After the government
acquired sixty percent (60%) shares of the company. Sequel to the
indigenization policy of the government.
1916, another, bank, the colonial bank was established in Nigeria. This bank
was later taken over by the bareday’s bank DC & O (Dominion, colonial and
overseas), which later changed its name to union bank.
foreign bank, the British and French bank for commerce and industry was
established and later changed its name to British and French bank and later in
1961, the name was changed to united bank for Africa limited.
to the domination of foreign bank in Nigeria in 1929, the industrial and
commercial bank was set up a handful of patriotic Nigerians. As a result,
between the periods of 1933, about two hundred (200) banks were registered with
a large percentage of them being indigenous banks. However, the indigenous bank
that were established first folded up; this was as a result of an attempt to
create fierce competition with expatriate banks.
the fact that up to one hundred and eight-five (185) banks were established
between 1947 and 1952 only four (4) banks survived. These banks includes, the
national of Nigeria established in 1933, Abgonmagbe bank establishment in 1954
which were later known as Wema bank (a private indigenous bank establishment by
Chief OKUPE). The Africa continental bank established in 1947 and founded by Chief
Nnamdi Azikiwe and the British and French bank an expatriate bank now called
united bank for Africa. As stated I the above paragraph, most of indigenous
banks flailed due to bad management, lack of patronage, fraud, under
capitalization, huge load debts etc. the high
rate of bank failure and the need to protect depositors of these banks
led to the appointment of Mr. P. Paton to Enquirer into the conduct of banking
business in Nigeria. As a result of the Paton report 1948, the enactment of the
first banking ordinance which provided for minimum capital requirements was
made; this led to the collapse of more indigenous banks. However, the period
before this has been described as the free banking era. Inspite of the Paton
repot and the enactment of the banking
ordinance of 1952, banks were still indulging in some mal-practices which
the act could not effectively control.
Therefore, the necessity of establishing a central bank of supervise and
control banks became more apparent and pressing. Thus, the central bank of Nigeria
came into being in 1959, which led to the increase of banking supervisions CMD
control and substantially curtail the mal-practice prevalent in the system.
Subsequent amendment of the CBN act of 1959 lightened the grip of the central
bank over the commercial banking institutions. Others legislation include; 1958
ordinance, the 1961, 1962 amendments and the 1969 banking Decree. As a result, the capital requirement especially
for foreign banks were doubled from N200,000 under the 1952 act to N400,000 and
was again increased to N1.5 million in
1969, from this period upwards though the policy objectives were to ensure
sound banking practices and to protect customers, the control instrument became
restrictive (Ebhodaghe 1993 and Adekanya 1986). Due to the imperfections in the
system of credit allocations, the cost of credit and the intermediation process
generally, the federal government introduced wide range of reforms in the
banking system from 1986 as part of the general deregulation of the economy in
the direction of market determine of pricing. The structural adjustment
programme (SAP) was designed to alter the structure and operational mechanism
of the financial system among other objectives. The reforms also made possible
for the free study entry of more commercial and merchant bank into the system.
As at 1992, a total of 121 bank (66 commercial and 55 merchant) were
established the increased competition for deposit created room for new products
to be introduced into the market as a result of the universal banking system.
Recently, the 7 clearing banks in the country has made it mandatory for all
existing banks in the entry country to reshape their financial position and
from time to time examine their capital adequacy. These 7 banks are: Zenith
bank Plc, United bank for Africa Plc, union Banks Plc, first bank Plc, Wema bank
plc, Afribank Plc, and Standard Trust bank Plc. Thus any bank (s) found on the
verge of distress.
1.2 STATEMENT OF THE PROBLEM
call for merger modality to sustain the liability of the banking industrial is
of paramount importance in Nigeria. These researches seek to answer the
How cost effective is merger and
acquisition option in lieu of other bank distress resolution option (deposit
pay-off deposit transfer, purchase and assumption of control etc.).
How feasible and effective is the
merger and acquisition option as a strategy for growth and sustenance of the
Is merger and acquisition the best
panacea for bank distress resolution?
In what ways has the Nigeria deposit
insurance corporation (NDIC) has
managing the distress is the banking industry?
How effective has the Nigeria deposit insurance
corporation (NDIC) been a supervisory
and regulatory authority in the banking system.
1.3 JUSTIFICATION OF THE STUDY
deregulation of the banking industry in the late 80s brought about an increase
in the number of banking institutions with competition. Each bank was
struggling to increase its market share and profitability to keep afloat the
shock created by the deregulation in a bid to avert distress. But, contrary to
the expectations of some financial analysts, the industry was plunged into an
acute financial distress, which led to the failure of some banks.
thought of establishing the Nigeria insurance corporation is an indication that
the problems arose from the liberalized licensing of banks and other deposit
taking institution in the banking industry could be better managed and returned
the lost public confidence into the system. Hence, the corporation came into
existence to manage the problem through effective financial crisis management
and risk aversion.
study is primarily based on the feasibility of
merger and acquisition in the banking industry as a bastion of hope in
lieu of liquidation and to checkmate the realities of bank distress and
failures. The study also aims at contributing to the improvement of banking industry
by demonstrating the practicability and efficacy of merger and acquisition as a
strategically option for corporate growth and sustenance.
1.4 OBJECTIVE OF THE STUDY
general objective of the study is to critically analysis the feasibility and
efficacy of merger and acquisition as a bank distress resolution option. The specific
To examine the practicability of
merger and acquisition as a strategically option for bank growth and
To examine the cost – effectiveness
and cost benefit analysis of merger and acquisition option.
To examine the different ad best
resolution option available to the Nigeria Deposit insurance corporation
To examine the impact of Nigeria deposition
Insurance Corporation in managing distress.
To make recommendation based on the
data analysed and finding there from.
1.5 SCOPE OF THE STUDY
study covers the in depth analysis of the impact of the NDIC on the control of
distress in banking system and the efficacy of merger and acquisition as a
resolution option to prevent back failures in Nigeria and the feasibility
duration of the study is limited to (1990 – 2002) when there was acute
financial crisis and commencement of operations of NDIC.
1.6 RELEVANCE OF THE STUDY
relevant of these study is to enhance and recommend way by which merger and
acquisition and reduce the wave of distress in the banking industry and the
deposit protection scheme of the Nigeria deposit insurance corporation (NDIC)
can be sustained by public confidence.
NDIC is an independent body and acts as an additional regulatory authority in
the supervision of bank to ensure compliance with regulation aims at ensuring
bank solvency. The NDIC can also arrange for other bank to assume the deposit
liabilities of a distress in the banking sector or take over the management of
a bank where such action becomes necessary to protect depositor’s interest.
1.7 DEFINITION OF TERMS
This is the joining of two or more companies or firms together.
This is the financial guarantee instituted as a measure of safety for the
banking system to protect depends.
Means the ability of a bank to generate sufficient revenue in excess of their
This is the state of suffering caused by lack of money.
This is the availability of ready money or cash to meet customer withdrawal.
Refer to the assurance that the loan granted would be repaid at maturity.
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