1.0 Introduction
1.1 Background of the Study
The recapitalization and consolidation exercise in the banking industry by the former Central Bank of Nigeria Governor, Professor Charles Soludo has necessitated the need for different organization to engage in corporate consolidation (mergers and acquisition). The concepts of recapitalization refer to the current trend of compelling all commercial banks to raise the capital base from two billion to twenty-five billion Naira by the Central Bank of Nigeria on or before 31st December 2005. This has sent some of these banks on the move to consider merger and acquisition as a survival strategy.
Where We Were Before Consolidation
89 banks with 3,382 branches predominantly in the Urban centres as at June 2004 characterized by structural and operational weaknesses such as
Low capital base: ” Dominance of a few banks insolvency and illiquidity. Over dependence on public sector deposits and foreign exchange trading.
Weak corporate governance: ” A system with low depositor confidence. Bank that could not real sector of the compared to Africa 27% for developed countries.
1.2 Statement of the Problems
Business organizations are recently seeing consolidation (mergers and Acquisition) as an alternative means of recapitalizing. The cements trend of compelling all commercial banks raise their capital base from two billion to twenty-five billion naira by CBN on or before 31st December 2005 has sends some of these banks on their heels to consider merger and Acquisition as a survival strategy.
The expected problems regarding consolidation are:
There exits a high degree of calculated risk taking to top opportunities that come the way of business, but there is risk avoidance in Nigeria Business and where risk is low, development is also low and industrial advancement becomes near static.
Consolidation could be very expensive venture in terms of funds required to prosecute it successfully. Corrupts practice of public and private sector levels are another impediment. This need to be discouraged and incidence of corrupt practices should be severely punished because consolidation deals require confidence and trust to promote consummation.
Nigeria suffers anemically from lack of information which may unfortunately hinder significant leaps in business combination.
1.3 Objectives of the Study
The fundamental objectives of this study are:
- To assess the implication of consolidation on the banking industry.
- To examine the impact of consolidation on the Nigeria banks
- To highlight possible challenges posed by the policy of the bank consolidation.
- Assess Nigeria banks before consolidation.
- Identify the benefits of bank consolidation.
- Evaluate the prospect of banks after consolidation
- Assess the implication of consolidation on bank in Nigeria.
1.4 Research Question
The questions on this research work are:
- Is there significant relationship between capitalization and liquidity ration of bank in Nigeria?
- Is there significant relationship between capitalizations and to deposit ration?
1.5 Statement of Hypothesis
Banidam (2001) defined hypothesis as a tentative answer to the problem.
The following hypothesis will be formulated from the objective and will be verified in the course of this research work and noted as null from guide us in problem that is induced in this research work.
Hypothesis:” There is no significant relationship between capitalization and liquidity ration of banks in Nigeria?
Ho:- There is no significant relationship between capitalization and loan to deposit ration?
1.6 Significant of the Study
Significant of the study is to add to the general body of knowledge, enlighten the general public on the effects of the bank consolidation on the performance of banks in Nigeria. And also explain the challenges of bank consolidation.
This research work would also establish that fact that consolidation (merger and acquisition) is a veritable means for fostering banking growth.
1.7 Scopes of the Study
The scope of the study is to know the challenge of bank consolidation. Due to the financial constraint coupled with available, the research will make uses of available materials in the Securities and Exchange Commission's library. Central bank of Nigeria (CBN) and Association of issuing House of books relevant to the research topic will be consulted and the internet.
1.8 Limitation of the Study
This research work intends review how recapitalization exercise in Nigeria has brought about immense change in the banking industry by using two banks namely: Fin Bank and Fidelity Bank Plc Owerri Imo State respectively within the period of 2002 to 2011. This research work will concern itself on how the effort of the Federal Government of Nigeria through the help of Central Bank of Nigeria has set up some corrective measure to put in place the activities of the commercial banks.
1.9 Definition of Terms
Bank Re-Capitalization:
This is the act of supplying long-term funds of the Owners of the bank to meet the requirement of monetary authority. Osiegbu (2005).
Consolidation:
This is the reduction in the number of banks and other deposit taking institution with a simultaneous increase in the size and concentration of the consolidation entities in the sector (BIS, 2001:2)
Merger:
It is the combination of two or more separate firms into a single firm.
Acquisition:
It is where a company takes over the controlling of another company.
Modus Operandi:
A particular method of working or dealing with a task.
Cost-Cutting:
Reduction in the money spent on something because of financial difficulty.
Lay-off:
To dismiss a worker from a job especially temporarily when there is no work to do.
Shareholder:
An owner of shares in a business company.
Reform:
The act of making something more better by correcting or making improvements.
Banking sector:
An organization of various banks that provides financial services and are been supervised by the (CBN).
