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PROJECT PROPOSAL
IMPACT OF CONSOLIDATION ON NIGERIAN BANKING SECTOR
(CASE STUDY OF UBA)
BACKGROUND OF THE STUDY
Nigerian banking sector have undergone important structural and institutional changes over the last few decades caused by restructuring and liberalization of the financial market and have had significant implications for the nation’s banking sector (Asogwa, 2003). The restructuring and liberalisation of the financial market were undertaken as one of the blueprints of the structural adjustment programme (SAP) of the government. Overall, the banking sector has experienced steady consolidation through recapitalisation and mergers and acquisitions that have resulted in fewer banks holding a greater value of the total assets in the sector (Okpanachi, 2011).
Spearheaded by the announcement by the Central Bank of Nigeria on July 6, 2004 about a major reform program that would transform the banking landscape of the country, an unprecedented process of merger and acquisition had taken place in the Nigerian Banking Sector; shrinking the number of banks from 89 banks to 25 banks but later reduced further to 23 banks with the merger of some banks like First Altantic Bank Plc and Inland Bank to form Fin Bank Plc, Stanbic Bank Plc and IBTC to form Stanbic-IBTC bank. The number of operating bank later increased to 24 banks with the entering of Citibank Nigeria Limited. With the recent merger and acquisition of some of the nine rescued banks i.e the merger of Access Bank Plc with Intercontinental Bank Plc; merger of Ecobank Transnational Incorporated with Oceanic Bank Plc; merger of First City Monumental Bank with Fin Bank Plc, the number of banks operating in Nigeria will be reduced further.
The main thrust of the 13-point reform agenda was the prescription of a minimum shareholders’ funds of N25 billion for a Nigerian deposit money bank not later than December 31, 2005. The banks were expected to shore up their capital through the injection of fresh funds where applicable, but were most importantly encouraged to enter into merger/acquisition arrangements with other relatively smaller banks thus taking the advantage of economies of scale to reduce cost of doing business and enhance their competitiveness locally and internationally.
The consolidation process in Nigeria has basically been driven by government restructuring efforts rather than being a market-based process (Asogwa, 2003). Consolidation has been used as an efficient way of resolving problems of distress among banks (Okpanachi, 2011). There have been several cases of ‘purchase and assumption’ basically an acquisition type of transaction which involves purchasing the assets of a failed bank and assumption of its liabilities (particularly deposits) by another insured bank or by private investors (Ajayi, (2005)
STATEMENT OF THE PROBLEM
Extensive government intervention characterized financial sector policies, beginning in the 1960s and intensifying in the 1970s, the objective of which was to influence resource allocation and promote indigenisation. Since 1987 financial sector reforms have been implemented, encompassing elements of liberalisation and measures to enhance prudential regulation and tackle bank distress. Consolidation, which is an element of liberalisation is 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 entities in the sector Ajayi, (2005). It is mostly motivated by technological innovations, deregulation of financial services, enhancing intermediation and increased emphasis on shareholder value, privatisation and international competition (Berger et al., 1999; IMF, 2001).
Extensive government intervention characterized financial sector policies, beginning in the 1960s and intensifying in the 1970s, the objective of which was to influence resource allocation and promote indigenisation. Since 1987 financial sector reforms have been implemented, encompassing elements of liberalisation and measures to enhance prudential regulation and tackle bank distress. Consolidation, which is an element of liberalisation is 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 entities in the sector Ajayi, (2005). It is mostly motivated by technological innovations, deregulation of financial services, enhancing intermediation and increased emphasis on shareholder value, privatisation and international competition (Berger et al., 1999; IMF, 2001).
The nexus between consolidation and financial sector stability and growth is explained by two polar views. Proponents of consolidation opine that increased size could potentially increase bank returns, through revenue and cost efficiency gains. It may also, reduce industry risks through the elimination of weak banks and create better diversification opportunities (Berger, 2000). On the other hand, the opponents argue that consolidation could increase banks’ propensity toward risk taking through increases in leverage and off-balance sheet operations. In addition, scale economies are not unlimited as larger entities are usually more complex and costly to manage (De Nicoló et al., 2003). In the light of these existing two polar views on bank consolidation, this study shall examine the impact of the banking sector reforms, particularly, consolidation on the Nigerian banking sector.
OBJECTIVES OF THE STUDY
The study will focus on the following objectives:
1. To investigate the impact of consolidation on Nigerian banks’ performance;
2. To discuss the effect of the consolidation exercise on the financial structure of Nigerian banks;
3. To critically evaluate the structural and brand implications of the merger and acquisition option in the post consolidation era;
4. To identify those that will benefit and lose in the consolidation process.
RESEARCH QUESTIONS
The study would examine the following questions:
1. What are the structural and brand implications of bank consolidation in Nigeria?
2. How has the bank consolidation exercise affected the financial structure of Nigerian banks?
3. What is the chance of survival of the consolidation exercise?
4. What impact does the bank consolidation has on the cost of fund in Nigerian economy?
STATEMENT OF HYPOTHESIS
The hypothesis that would be tested in the course of this research is stated below as:
H0: That bank consolidation does not affect the banks’ performance in Nigeria
H1: That bank consolidation affects the banks’ performance in Nigeria
The hypothesis that would be tested in the course of this research is stated below as:
H0: That bank consolidation does not affect the banks’ performance in Nigeria
H1: That bank consolidation affects the banks’ performance in Nigeria
SCOPE OF THE STUDY
The consolidation exercise in the Nigerian banking sector has impacted greatly on the sector and other sectors of the economy. Although, the implications of the exercise has not fully manifested; this study shall examine the major immediate aftermath of the exercise. The study shall focus on the effect of the bank consolidation on the structural composition of the banking sector, and financial performance of UBA.
The consolidation exercise in the Nigerian banking sector has impacted greatly on the sector and other sectors of the economy. Although, the implications of the exercise has not fully manifested; this study shall examine the major immediate aftermath of the exercise. The study shall focus on the effect of the bank consolidation on the structural composition of the banking sector, and financial performance of UBA.
SIGNIFICANCE OF THE STUDY
The recent bank consolidations, which took place in the Nigerian banking sector, are here to stay and have started to change the face of the banking sector beyond recognition. After December, 2005 about thirteen banks have ceased to exist and the new banking groups are expected to be stronger and more viable (CBN, 2006).No matter which approach was selected by banks within the Nigerian financial sector, the consolidation will have a number of effects and implications. These effects and implications can be broken into 2 broad categories: 1. Brand implications 2. Structural implications. This research work intends to critically evaluate these implications. It is unprofessional to carry on the task of bank consolidation without considering the effects and implications on the sector. So, the significance of this study relates to the assessment of the aftermaths of the consolidation process in the banking sector.
The recent bank consolidations, which took place in the Nigerian banking sector, are here to stay and have started to change the face of the banking sector beyond recognition. After December, 2005 about thirteen banks have ceased to exist and the new banking groups are expected to be stronger and more viable (CBN, 2006).No matter which approach was selected by banks within the Nigerian financial sector, the consolidation will have a number of effects and implications. These effects and implications can be broken into 2 broad categories: 1. Brand implications 2. Structural implications. This research work intends to critically evaluate these implications. It is unprofessional to carry on the task of bank consolidation without considering the effects and implications on the sector. So, the significance of this study relates to the assessment of the aftermaths of the consolidation process in the banking sector.
ORGANISATION OF THE STUDY
This research work shall commence by providing a background of the subject matter justifying the need for the study as contained in chapter one. Chapter two shall present related literature concerning bank consolidation. The justification for and effect of bank consolidation shall also be discussed. The theoretical framework and research methodology shall then be outlined in chapter three while the data analyses and presentations shall be made and discussed in chapter four. Concluding comments in chapter five shall reflect on the findings of the study and suggestions made based on the findings.
This research work shall commence by providing a background of the subject matter justifying the need for the study as contained in chapter one. Chapter two shall present related literature concerning bank consolidation. The justification for and effect of bank consolidation shall also be discussed. The theoretical framework and research methodology shall then be outlined in chapter three while the data analyses and presentations shall be made and discussed in chapter four. Concluding comments in chapter five shall reflect on the findings of the study and suggestions made based on the findings.
REFERENCES
Ajayi, M. (2005) “Banking sector reforms and bank consolidation: conceptual framework” in “banking sector reforms and bank consolidation in Nigeria.” CBN Bullion, Vol. 29, No. 3. April/June.
Asogwa, R. C. (2003) “Liberalization, Consolidation and Market Structure in Nigerian Banking” A Paper Presented at the African Economic Research Consortium (AERC), Nairobi, Kenya.
Berger, A. N. (2000) “The Integration of the Financial Services Industry: where are the Efficiencies?” FEDS Paper No. 2000 – 2036.
Berger, A. N., Demsetz, R. S., and Strahan, P. H. (1999) “The Consolidation of Financial Services Industry: Causes, Consequences, and Implications for the Futures,” Journal of Banking and Finance, Vol. 23, pp. 135 – 94.
Central Bank of Nigeria (2006) Press Release, January. Abuja.
De Nicolo, Gianni, et al. (2003) “Bank Consolidation, Internationalization and Conglomeration: Trends and Implications for Financial Risk,” IMF Working Paper 03/158.
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SOLD BY: Excellent Project| ATTRIBUTES: Title, Abstract, Chapter 1-5 and
Appendices|FORMAT: Microsoft Word| PRICE: N5000| BUY NOW |DELIVERY
TIME: Within 24hrs. For more details Chatt with us on WHATSAPP @ https://wa.me/2348055730284
