Project Abstract

Project Overview

<p> </p><p><b>INTRODUCTION</b></p><p><b>1.1 &nbsp; &nbsp; &nbsp; Background to the Study</b></p><p>A sound and competent banking sector is<br>essential for a stable macroeconomic environment, therefore, the importance of commercial<br>banks in a country cannot be overemphasized, because they occupy key positions<br>in a country’s financial system and are essential agents that would lead to the<br>growth of any economy (Oloye &amp; Osuma, 2015). Commercial banks also act as<br>the agents of financial intermediation within a country by moving funds between<br>the surplus and the deficit sectors within an economy and they facilitate the<br>implementation of monetary policies.</p><p>Banks mobilize and facilitate the efficient<br>allocation of national savings, thereby increasing the quantum of investments<br>and hence national output (Afolabi, 2004). Through financial intermediation;<br>banks facilitate capital formation (investment) and promote economic growth<br>(Olagunju &amp;Adebayo, 2012). Prequel to the above statements, commercial banks<br>have experienced a lot of banking hardship, especiallybetween the decade<br>(1993-2003) which was tagged the era of bank distress which became a source of<br>concern not only to the regulatory bodies (Central Bank of Nigeria, Nigeria Deposit<br>Insurance Commission etc.) but also to the general public and the policy<br>analyst. Therefore, there was a need for the overhaul of the Nigerian banking<br>sector in order to restorethe already dying confidence of the general public<br>and other foreign investors who could not sleep with their two eyes closed as a<br>result of the weak financial system that Nigeria operated.</p><p>The Central Bank of Nigeria (CBN) as a<br>regulatory body came up with the recapitalization and consolidation exercise in<br>the banking industry under the leadership of the then governor of CBN Professor<br>Charles Soludo who called on banks to increase their paid-up capital through<br>public offers or corporate restructuring exercise (mergers and acquisition)<br>with the view of eradicating the expansion bottlenecks, volatility between the deposit<br>and lending rates and some other constraints faced by the banks. This made some<br>of the commercial banks to consider Merger and Acquisition as a survival<br>strategy. This reform was announced by Professor Chukwuma Soludo on July 6th<br>2004 that the Nigerian commercial banks should beef up their minimum capital<br>base from N2billion to N25 billion on or before 31st December 2005, with the<br>major objective of creating a sound and a more secure banking system which will<br>strengthen our financial system that depositors can trust. This will enhance<br>the operational capital base of the Nigerian banks. A total of 89 commercial<br>banks were in existence in Nigeria before the announcement in 2004. According<br>to CBN report, 25 banks emerged at the end of the consolidationexercise from<br>the previous 89 banks, while 14 banks liquidated. The 14 banks under<br>liquidation include: Fortune Bank, Gulf Bank, Liberty Bank, Triumph Bank,<br>Metropolitan Bank, Trade Bank, Afex Bank, City Express Bank, Eagle Bank, Societe<br>Generale Bank of Nigeria, Assurance Bank, All State Trust Bank, Hallmark Bank<br>and Lead Bank. The number of banks further declined to 24 in 2007 following the<br>market induced merger of IBTC Chartered Bank PLC with Stanbic Bank Ltd.</p><p>Merger and acquisition as a means of<br>corporate restructuringexercise have been known to provide some forms of<br>economicand financial benefits such as; economies of scale,<br>riskdiversification, ability to compete locally and internationally with other<br>banks (John &amp;Acha, 2012).</p><p><b>1.2 &nbsp; &nbsp; &nbsp; Statement of Problem</b></p><p>A strong and virile economy depends to a<br>very large extent on a robust, stable and reliable financial system,<br>particularly the banking sector. With the successful recapitalization<br>exercise,commercial banks in Nigeria were expected to be virile and optimally<br>efficient. But how far theexercise has made commercial banks in Nigeria to be<br>virile, sound, strong and efficient so as to maximise their contribution to the<br>growth of the economy is not very clear.It is in the light of the above that<br>this study seeks to evaluate the effects of mergers and acquisitions on the<br>growth banks in Nigeria.</p><p><b>1.3 &nbsp; &nbsp; &nbsp; Research Questions</b></p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Based<br>on the problems identified above, the following research questions were raised<br>for the study;</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Is<br>there any significant difference between Nigerian banks’ capital adequacy<br>before and after merger or acquisition?</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Is<br>there any significant difference between Nigerian banks’ return on performing<br>loan before and after merger or acquisition?</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Is<br>there any significant difference between Nigerian banks’ return on assets<br>before and after merger or acquisition?</p><p><b>1.4 &nbsp; &nbsp; &nbsp; Objectives of the Study</b></p><p>The broad objective of this study is to<br>examine the effect of mergers and acquisitions on the growth of Nigerian banks.<br>However, the following specific objectives were raised;</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Examine<br>whether there is a difference between banks’ capital adequacy management before<br>and post-merger.</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Determine<br>the difference in pre and post-merger return on performing loans of banks.</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; <br>Determine<br>if there is a significant difference in banks’ return on asset pre-merger and<br>post-merger.</p><p><b>1.5 &nbsp; &nbsp; &nbsp; Hypotheses of the Study</b></p><p>For the purpose of this study, the<br>following null hypotheses were raised;</p><p>H01: There is no significant<br>difference between Nigerian banks’ capital adequacy management before and after<br>merger or acquisition</p><p>H02: There is no significant<br>difference between banks pre and post-merger return on performing loans.</p><p>H03: There is no significant<br>difference between banks pre and post-merger return on assets. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</p><p><b>1.6 &nbsp; &nbsp; &nbsp; Justification of Study</b></p><p>Quite<br>a number of research have been carried out in relation to this topic such as<br>Oloye and Osuwa (2015) who thoroughly examined the impact of mergers and<br>acquisition on the performance of Nigerian banks. In the same vein, many other<br>authors have reviewed similar subjects. This research however seeks to examine<br>deeply the effect of mergers and acquisitions on the performance of commercial<br>banks.The outcome of this study could be beneficial to managers, investors,<br>entrepreneurs and other stakeholders in the Nigerian banking system as it will<br>help to understand and see the importance of synergy which will lead to the<br>better performance of the banks involved and the Nigerian banking system as a<br>whole.</p><p><b>1.7 &nbsp; &nbsp; &nbsp; Scope of the Study</b></p><p>Numerous mergers and acquisitions of<br>banks have taken place since the inception of banking in Nigeria in the year<br>1896. The most of the mergers and acquisition activities took place in the year<br>2004-2005 when the Federal Government of Nigeria through the Central Bank of<br>Nigeria enforced a minimum capital base of ₦25Billion on commercial banks<br>operating in Nigeria. However, due to the distance in time, the mergers and<br>acquisitions that occurred in that time will not be considered but latter<br>M&amp;A. For the purpose of this study, the acquisition and merger activities that<br>occurred between the years 2011-2015 were reviewed.</p><p><b>1.8 &nbsp; &nbsp; &nbsp; Definition of Terms</b></p><p><b>Mergers:</b>&nbsp;A merger is said to occur when two or<br>more companies combine into one company.</p><p>There are two forms of merger; Merger<br>through absorption is a combination of two or more companies into an existing<br>company whereby only one company retains its identity and the rest loses theirs<br>while merger through consolidation is a combination of two or more companies to<br>form a new one. In this type of merger all companies are legally dissolved and<br>a new entity is formed. In a consolidation, the acquired company transfers its<br>assets, liabilities and shares to the new company.</p><p><b>Acquisition:</b>&nbsp;Acquisition may be defined as an act of<br>acquiring effective control over asset or management of a company by another<br>company without any combination of businesses or companies. It is also defined as<br>the process of taking a controlling interest in a business (Dictionary of<br>Finance and Banking).</p><p><b>Takeover</b>: A takeover can be said to be an acquisition.<br>A takeover occurs when the acquiring firm takes over the control of the target<br>firm. In some case it can be said to be an assumption of control of a corporation<br>achieved by buying a majority of its shares (Encarta dictionary), a takeover<br>can also be aconglomerate merger.</p><p><b>Corporate<br>restructuring</b>: Corporate<br>restructuring can also be termed business combination and it includes merger<br>and acquisition (M&amp;A), amalgamation, takeover, leveraged buyouts, capital reorganization,<br>sale of business units and assets etc.</p><p><b>Return<br>on asset</b>: Statistic<br>calculated by dividing a company’s annual earnings by its total assets. It indicates<br>how profitable a company is relative to its total assets (Encarta dictionary).</p><p><b>Return<br>on equity:</b>&nbsp;The return on<br>equity is net profit after tax divided by shareholders’ equity which isgiven by<br>net worth. This is the net income of an organization expressed as a percentage<br>of its equity capital, i.e. it indicates how well the firm has used the resource<br>for owners (shareholders).</p><p><b>Recapitalization:</b>&nbsp;This is defined as the process of changing<br>the balance of the debt (leverage) and equity financing of a company without<br>changing the total amount of capital. Recapitalization is often required as<br>part of reorganization of a company under bankruptcy legislation.</p><p><b>Consolidation:</b>&nbsp;Consolidation is a combination of two or<br>more companies into a new company. In this form of merger, all companies are<br>legally dissolved and a new entity is created. In a consolidation the acquired company<br>transfers its assets, liabilities and shares to the new company for cash or<br>exchange of shares.</p><p><b>1.9 &nbsp; &nbsp; &nbsp; Plan of the Study</b></p><p>This study comprise chapters one to five. The chapter one is the introduction which<br>entails the statement of problems, the objectives, the research questions as<br>well as the hypotheses of the study amongst others. The second chapter is the relevant literature<br>to the study. The theoretical, empirical<br>as well as the conceptual framework were examined in this chapter. The third<br>chapter, chapter three is the methodology in which the sample size and<br>technique were highlighted. In this chapter, the method of data collection and<br>analysis were indicated. The second to the last chapter, chapter four is the<br>data analysis, presentation and interpretation. Lastly, chapter five comprise<br>the summary, conclusion and recommendations of the study.</p> <br><p></p>