ABSTRACT
This
study aim at analyzing the effect of merger and acquisitions on the performance
and growth of financial sector within the span of 2005-2012. The broad
objective of this research work is to examine if there is a significant
difference in the pre and post mergers and acquisitions periods of banks in
terms of gross earnings and also to examine if there is a significant
difference in the pre and post mergers and acquisitions periods of banks in
terms of profits after tax and net assets. The data were collected from the annual
report of three banks namely Sterling Bank Nigeria plc, Access Bank plc and Eco
Bank of Nigeria plc for the period of 2005-2012. The Ordinary Least Square (OLS) were employed using E-view
Statistical Method. The result of the analysis shows that there is a
significant difference in the pre and post mergers and acquisitions periods of
banks in terms of gross earnings and also that there is a significant
difference in the pre and post mergers and acquisitions periods of banks in
terms of profits after tax and net asset. Based on these findings, it is
recommended that government should strengthen the financial sector by
encouraging merger and acquisitions in Nigerian banks.
TABLE OF CONTENTS
TITLE PAGE
Title
page i
Declaration
ii
Certification
iii
Dedication
iv
Acknowledgement
v
Abstract
vi
Table
of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background
of the Study 1
1.2 Statement of the Problem 2
1.3 Objectives of the Study 3
1.4 Research Questions 4
1.5 Research Hypotheses 5
1.6
Significance of the Study 6
1.7 Scope and Limitation of the Study 6
1.8. Definition of Terms 6
CHAPTER
TWO: LITERATURE REVIEW
2.1.
Conceptual Framework 9
2.1.1.
Merger and Acquisition 9
2.1.2. Banking Sector Performance 12
2.2 Empirical Review 12
2.3. Theoretical Review 24
2.4.
Summary 31
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1. Introduction 34
3.2. Re-Statement of Hypotheses 34
3.3
Specification of Model 35
3.4 Research Methodology 36
3.5 Source of Data 36
3.6 Methods of Analysis 36
3.7.
Limitation of Methodology 37
CHAPTER
FOUR:ANALYSIS AND INTERPRETATION OF DATA
4.1 Introduction 38
4.2. Data
Presentation on Sterling
Bank of Nigeria Plc For Pre 38
(1997- 2004) and Post (2005-2012) MERGER.
4.3 Data
Presentation on Access Bank for African Plc for Pre 44
(1997- 2004) and Post (2005-2012)
4.4 Eco
Bank Nigeria Plc extracted financial efficiency 49
parameters (1997 to 2004) pre merger and (2005-2012)
post merger .
4.3. Conclusion 53
CHAPTER FIVE: SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 55
5.2 Summary
of Findings 55
5.3 Conclusions 56
References 59
Appendix 73
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The relevance of banks in the
economy of any nation cannot be overemphasized. They are the cornerstones of
the economy of a country. The economies of all market-oriented nations depend
on the efficient operation of complex and delicately balance systems of money
and credit (Bauer, 2009).
Banks are an indispensable element
in these systems. They provide the bulk of the money supply as well as the
primary means of facilitating the flow of credit. Consequently, the economic
well being of a nation is a function of advancement and development of her
banking industry (Obadan, 2007).
The financial deregulation in
Nigeria that started in1986 and the associated financial innovations have
generated an unprecedented degree of competition in the banking industry. The
deregulation initially pivoted powerful incentives for the expansion of both
size and number of banking and non-banking institutions
(Chatterjee, 2006).
The consequent phenomenal increase
in the number of banking and non-banking institutions providing financial
services led to increased competition amongst various banking institutions, and
between banks and non-banking financial intermediaries.
Banks play a crucial role in
propelling the entire economy of any nation, of which there is need to
reposition it for efficient financial performance through a reform process geared
towards forestalling bank distress.
In Nigeria, the banking sector is
part and parcel of the government strategic agenda aimed at repositioning and
integrating the Nigerian banking sector into the African regional and global
financial system in order to make the Nigerian banking sector sound, the sector
has undergone remarkable changes over the years in terms of the number of
institutions, structure of ownership, as well as depth and breadth of
operations (Akpan 2007). These changes
have been influenced mostly by the challenges posed by deregulation of the
financial sector, operations globalization, technological innovations, and
implementation of supervisory and prudential requirements that conform to
international Soludo (2004) opined that, the Central Bank of Nigeria(CBN) chose
to begin the Nigerian banking sector reforms process with the consolidation and
recapitalization policy through mergers and acquisitions. This is done in order
to arrest systems decay, restoration of public confidence, building of strong,
competent and competitive players in the global arena, ensuring longevity and
higher returns to investors considering the regulations and standards.
Inability of most Nigerian banks to
perform well due to operational hardship, expansion bottlenecks as a result of
heavy fixed and operating costs coupled with volatility between
deposits and lending rates, the present banking sector reforms in Nigeria was
announced by Chukwuma Soludo, the then CBN governor on July 6th, 2004 with the
objective of creating a sound and more secure banking system that depositors
can trust through mergers and acquisitions which enhanced operational capital
base. These and many more, act as a springboard to achieving improved
efficiency. However, this research work will examine effect of merger and
acquisitions on the performance and growth of financial sector.
1.2 Statement of the Problem
The
Nigerian banking system has undergone remarkable changes over the years in
terms of the number of institutions, ownership structure as well as development
of the grassroots area. The changes have been influenced by challenges posed by
deregulation of the financial sector, globalization, technological innovation
and adoption of supervisory and prudential requirements that conform to
international standard (Adeniyi 2010).
The
recent incident of bank mergers and acquisitions in Nigeria is attracting much
attention, partly because of heightened interest in what motivates firms to
merge and how merger and acquisition affects performance or efficiency as well
as banks output. The banking system has also been plagues by sharp practices,
fraud and forgeries especially by in-house managers and other connected person.
However,
the vital importance of merger on the performance of banking industry has not
been fully explored thereby creating a research gap in this area. Hence, this
research work will examine effect of merger and acquisitions on the performance
and growth of financial sector.
1.3
Objectives of the Study
The
general objective of this research work is to examine the effect of merger and
acquisitions on the performance and growth of financial sector. However the
specific objectives are;
1. To
examine if there is a significant difference in the pre and post mergers and
acquisitions periods of banks in terms of gross earnings.
2. To
examine if there is a significant difference in the pre and post mergers and
acquisitions periods of banks in terms of profits after tax.
3. To
examine if there is a significant difference in the pre and post mergers and
acquisitions periods of banks in terms of net asset.
1.4 Research Questions
The research questions that are relevant
to this study are state below:
(i)
Is there a significant difference in the
pre and post mergers and acquisitions periods of banks in terms of gross
earnings?
(ii)
Is there a significant difference in the
pre and post mergers and acquisitions periods of banks in terms of profits
after tax?
(iii) Is
there a significant difference in the pre and post mergers and acquisitions
periods of banks in terms of net asset?
1.5
Research Hypotheses
The
hypotheses that were tested in the course of this research are stated below:-
Hypothesis
1
Ho:
There is no significant difference in the pre and post mergers and acquisitions
periods of banks in terms of gross earnings.
H1:
There is a significant difference in the pre and post mergers and acquisitions
periods of banks in terms of gross earnings.
Hypothesis
2
Ho:
There is no significant difference in the pre and post mergers and acquisitions
periods of banks in terms of profits after tax.
Hi:
There is a significant difference in the pre and post mergers and acquisitions
periods of banks in terms of profits after tax.
Hypothesis
3
Ho:
There is no significant difference in the pre and post mergers and acquisitions
periods of banks in terms of net asset.
Hi:
There is a significant difference in the pre and post mergers and acquisitions
periods of banks in terms of net asset.
1.6 Significance of the Study
The
significance of the study is to give enlightenment on the effect
of merger and acquisitions on the performance and growth of financial sector and also to justify the merger and
acquisition exercise as directed by the CBN and its effect on the economy as a
whole. Stakeholders and general public will benefited from the research work.
Moreso,
Academics and students will appreciate the usage of this research as part of
their reference material.
1.7
Scope and Limitation of the Study
The subject matter of the study was
limited to a period of 8 years (2005-2012). The period is important
in order to derive more
realistic conclusion and recommendations while the
study will also be constrained by the time
among others.
1.8. Definition of Terms
Merger:
This
is a situation where two or more independent companies combine to form a new
company.
Acquisition:
This
is where one company takes over the control of another company by buying all
the shares or sufficient shares to enable them have controlling power in the
company.
Consolidation:
viewed
as the reduction in the number of banks and other deposit taking institutions
with a simultaneous increase in size and concentration of the consolidated
entitles in the sector (BIS, 2001)
Strategy:
According
to Onwuchekwa, (2009) strategy is an integrated plan through which a business
organization accomplishes its objective, or rather as an overall response of a
business organization over its environment.
Reform:
Predicated
upon the need for reorientation and repositioning of an existing status quo in
order to attaining an effective and efficient state.
C.A.M.E.L It
is a parameter used in accessing the health of banks where C stands for capital
adequacy, A stands for Asset quality, M stands for Management and staff, E
stands for Earning and profitability, L stands for Liquidity and fund
management.
Capital Base: It
is paid up capital and reserved unimpaired losses.
Capitalization: Provision
of money needed by company to function effectively and efficiently.
Central Bank of Nigeria (CBN): It
is the apex bank in Nigeria banking sector or industry that represent the
government of the country and also act as the banker to the government in the
area of financing, advertising on monetary policies and implementation.
C.T.C Certified True
Copy
Distressed Bank: These are banks that are unable to
meet its obligation, both in the society and to their depositors.
Due Diligence: This is a phrase in merger and
acquisition prices where parties explore the risk inherent in purchasing or
merging will another company.
F.S.A.P: Financial Sector Assessment
Programme
Memorandum
of Understanding (MOU): It is an undertaking by the parties top the pre-merger arrangement or
programme.
Login To Comment