ABSTRACT
Essentially,
this study assesses the effect of reconsolidation in the banking industry on
the Nigeria
economy using the First Bank of Nigeria Plc as a case study.
The
fundamental issues which the study intent to test are; the significance of the
reforms on the banking industry and the possible correlation between the
reforms and the aggregate economy performances. The research methodology used
for the test of these hypotheses was basically primary data using questionnaire
for their extraction. The extracted data were presented in form of frequency
distribution table, while the analysis and interpretation were through the use
of simple percentages. More also, in order to provide empirical support for the
research study all the hypotheses were tested using the chi-square statistical
method.
In
the course of the findings, it was revealed that reconsolidation in the banking
industry has not only redefine the nature of competition in the sector, but has
also generated more employment opportunities in the country.
It
is the conclusion of this study that for the reforms to produce positive impact
on the macro economy there should be effective implementation of the programme.
TABLE OF CONTENTS
Title
Page
Dedication
i
Declaration
ii
Certification
iii
Acknowledgment iv
Abstract
vi
Table
of Contents vii
Chapter One: Introduction
1.1
Introduction 1
1.2
Statement of Research Problem 4
1.3
Purpose of the Study 5
1.4
Statement of the Research Questions 6
1.5
Statement of Research Hypothesis 7
1.6
Significance of the Study 8
1.7
Scope and Limitation of the Study 9
1.8
Definition of Terms 9
Chapter Two: Literature Review
1.1
Introduction 12
1.2
Consolidating the Nigerian Banking
Industry 13
1.3
The Performance of Nigerian Banking
Industry in
1990-2004 Period 22
1.4
Challenges Facing Banking Industry in Nigeria
(Pre-Consolidation) 27
1.5
The Rationale for Consolidation in the
Banking
Sector 32
1.6
Summary of the Review 35
Chapter Three: Research Methodology
3.0 Methodology 37
3.1 Research Design 38
3.2 Re-Statement of Hypothesis 38
3.3 Population and Sample Size 39
3.4 Techniques of Data Collection 39
3.5 Questionnaire Assumption 40
3.6 Questionnaire Administration 40
3.7 Limitation of the Study 40
Chapter Four: Presentation and Analysis of
Data
4.0
Introduction 41
4.1 Presentation and Analysis of Data 42
4.2 Testing of Research Hypothesis 58
Chapter Five: Summary, Conclusion,
Recommendations and Suggestions for Further Studies
5.1
Summary 63
5.2
Conclusion 66
5.3
Recommendations 68
5.4
Suggestions for Further Studies 69
References 70
Appendix I 73
Appendix II 74
Appendix III 77
Appendix IV 78
Appendix V 79
Appendix VI 80
CHAPTER ONE
1.1 INTRODUCTION
It
is incontrovertible that the banking system is the engine of growth in any
economy; it gives its function of financial intermediation. Through this
function, banks facilitate capital formation, lubricate the production engine
turbines and promote economic growth. The relevance of banks in the economy of
any nation cannot be over emphasized. They are the cornerstones, the linchpin
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. 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, it is submitted that the economic well being of a nation is a
function of advancement and development of her banking industry.
However,
bank’s ability to engender economic growth and development depends on the
health, soundness and stability of the system. The need for a strong reliable
and viable banking system is underscore by the fact that the industry is one of
the few sectors in which the shareholders’ fund is only a small proportion of
the liabilities of the enterprises. It
is therefore, not surprising that the baking industry is one of the most
regulated sectors in any economy. It is against this background that the
central bank of Nigeria,
in the maiden address of its current governor, Prof. Charles Soludo, outlined
the fist phase of its banking sector reforms designed to ensure a diversified
strong and reliable banking industry.
It
must be noted that banking sector reforms has been an integral part of the
economic reforms which began in Nigeria
in the mid- 1980s with the adoption of the structural adjustment programme
(SAP). Four phases of banking sector reforms are easily discernable in Nigeria since
1986. They are as follows:
a.
First phase is the financial systems
reforms which led to deregulation of the banking industry, in addition to
credit, interest rate and foreign exchange policy reforms.
b.
The second phase began in the late
1993-1998, with the re-introduction of regulations. During this period, banking
sector suffered deep financial distress which necessitated another round of
reforms, designed to manage the distress.
c.
The third phase began with the advent of
civilian democracy in 1999 which saw the return of liberalization of the
financial sector, accompanied with the adoption of distress resolution
programmes.
d.
The fourth phase of the financial sector
reforms which began since July
6, 2004 to December
31, 2005 is what I tagged as the “Soludo Model”.
The
case study of this research work is the first bank of Nigeria Plc which was
incorporated as a limited liability company on March 31, 1894, with the Head Office in Liverpool by Sir Alfred Jones, a shipping magnate. It
started business in the office of Elders Dumpster with company in Lagos under the corporate
name of the bank for British West Africa (BBWA) with a paid-up capital of
12,000 pounds sterling after absorbing its predecessor; the African banking
corporation, which was established earlier 1892.
In
its early years, the Bank worked closely with the colonial governments of
British West Africa by performing the traditional functions of a central Bank,
including the issue and distribution of species in the West African sub-region.
Consequently,
the Bank recorded impressive growth, opening its first branch office in Accra, Ghana
in 1896, and a second branch in Freetown,
Sierra Leone,
two years later (1958). These marked the beginning of the Bank’s international
banking operations.
By
1963, the Bank had 114 branches in West Africa.
59 of these were in Nigeria,
41 in Ghana,
11 in Sierra Leone,
1 in the Gambia
and 2 in Cameroon.
1.2 STATEMENT OF RESEARCH PROBLEMS
It
is not a gain saying that reconsolidation in the banking industry has immensely
improved the economy growth and economy development of the country. Despite
this achievement, the process of the consolidation has been confronted with a
lot of challenges, thereby while some banks are improving both in products and services;
others are yet to find their bearing in creating positive impact on the
economy.
This
study is aimed at investigating the impact of reconsolidation in the banking
industry on the Nigerian economy which has raised a number of fundamental
issues such as the timeline given for the consolidation programmes without
considering the high cost that is involved in the process of merging and
acquisitions. More also, some of the consolidating banks find it difficult to
cooperate with one another. There is also the problem of corporate government
and Information and Communication Technology (ICT) related issues. All these
issues form the basis for the study.
1.3 PURPOSE OF THE STUDY
The
purpose of this research work is to evaluate the effect of reconsolidation in
the banking industry on the Nigerian economy and to look into the issues that
confront the industry during both pre-consolidation and post consolidation
arena. Thus in the course of this study, the following issues are expected to
be achieved:
1.
To evaluate the rationale
for-re-consolidation in the banking sector.
2.
To evaluate the performance of the
Nigerian banking industry from 1990-2004 period.
3.
To analysis the nature and assessment of
banking sector consolidation.
4.
To evaluate the impact of the
consolidation programme on the banking industry and on the Nigerian economy.
5.
To appraise the challenges and matters
arising from consolidation issue.
6.
The prospect and the way forward in the
industry.
1.4 STATEMENT OF RESEARCH QUESTIONS
The
growth experiencing in the banking industry and their positive impact on the
Nigerian economy as a result of re-structuring in the sector has generated the
following research questions:
1.
What are the factors that necessitated
re-consolidation in the banking industry?
2.
How will the banking industry cope with
the challenges of aftermath of the reforms?
3.
Does the banking industry will be able to
bear the cost of merging and acquisition due to the policy?
4.
Is there any significant impact between
re-consolidation in the banking industry and the aggregate performance of the
Nigerian economy?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
The
most important step a researcher takes in attempting the study of any
relationship between variables is to express this relationship in mathematical
form, that is, specified the model with which the economic facts will be
employed empirically. This process is called the formation of maintained
hypothesis. The formation involves the
determination of both the dependent and independent variables. Thus in the
course of this research work, the hypotheses to be tested are:
1.
H0: That banking industry
performance has not improved significantly despite the reconsolidation in the
industry.
H1: That banking industry performance has improved
significantly due to the reconsolidation in the industry.
2.
H0: That there is no
correlation between the reforms in the banking industry and the aggregate
economic activity.
H1: That there is correlation between the reforms in
the banking industry and the aggregate economic activity.
1.6 SIGNIFICANCE OF THE STUDY
This
research would throw more light on the effect of re-consolidation in the
banking industry on the Nigerian economy, with special references to First Bank
of Nigeria Plc. The finding of the study will be relevant to the following:
a.
To the management of First Bank of Nigeria
Plc
b.
To Lagos State
University for academic
purpose
c.
To other firms in the banking industries
d.
To any individual or group who might want
to carryout research on same related topic in future.
e.
To the researcher to academic purpose and
as a sign of achievement.
1.7 SCOPE AND LIMITATION OF THE STUDY
The
scope of this research work is to highlight the effect of reconsolidation in
the banking industry on the Nigerian economy with references to First Bank of
Nigeria Plc. The study is, however limited due to time and financial
constraints.
1.8 DEFINITION OF TERMS
1.
Acquisition:
This is also called (takeover) is the purchase of a controlling interest in one
company by another company.
2.
Bank
Incense: Is the authority given to a bank to operate as
business entity.
3.
Central
Bank: Is the apex regulatory authority of the financial
system.
4.
Commercial
Banks: Are financial institutions where money and other
valuables are kept for safe custody.
5.
Consolidation:
Is the way of making a firm or an industry more efficiency and better
capitalized.
6.
Capital
Base: Is the amount that is required by the authority
for the establishment of an organisation.
7.
Deregulation:
Is the withdrawal of government policies, laws and actions that could restrain
the entry and exist of any organisation into any sector or industry.
8.
Distress:
Is the instability and weakness of bank.
9.
External
Reserve: Is the aggregate stock of internationally
acceptable assets held by the central bank to settle a deficit in a country’s
balance of payments.
10.
Financial
Market: Is a mechanism by which surplus and deficit
units of an economy can be brought together.
11.
Monetary
Policy: Refers to the credit control measures adopted by
the central bank of a country.
12.
Mergers:
Is an amalgamation between two separate companies to form a
single company.
13.
Memorandum
of Understanding: Is a record of legal agreement between
two separate companies that wish to merge as single company.
14.
Macro
Economic Variables: These are the targets and objectives of
monetary authority which they want to achieve at a specific period to time.
15.
Over
Capitalization: Is an inefficient working capital
management that results in excessive stocks, debtors and cash and very few
creditors.
16.
Private
Placement: Is an arrangement where by an issuing house
arranges for the company shares to be bought privately by small number of
investors such as high net worth individuals and institutional investors.
17.
Public
Offer: Is a means of selling share of a company to the
public at large with an issuing house acting as agent and underwriter.
18.
Right
Issue: Is a method of raising new share capital whereby
an offer is made to existing shareholders inviting them to subscribe cash for
new shares in proportion to their existing shareholdings.
19.
Shareholders are he owners of the firm.
20.
Universal
Banking: Is an authority given to a bank to decide on its
own portfolio of business select appropriate delivery channels and
infrastructure within and applicable regulatory framework.
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