Ibo, Sunday
Adekoya
The Federal Polytechnic,
Ile-Oluji, Ondo State, Nigeria
Oyewole, Kehinde
Samuel
The Federal Polytechnic,
Ile Oluji,
Ondo State, Nigeria
Akindutire,
Solomon O.
The Federal Polytechnic,
Ile Oluji,
Ondo State, Nigeria
Oluwadare,
Ayodeji Abraham
Rufus Giwa Polytechnic,
Owo, Ondo
State, Nigeria
ABSTRACT
Merger
and acquisition is the only legal mode for the banking consolidation as part of
the economic reform. For banks to be
active player in the economy it requires adequate capital and this can be
sourced through merger and acquisition. More often than not, since merger and
acquisition is a vital instrument for banks recapitalization and efficiency,
there is need for researchers to find out its impact both negative and positive
in the banks and the economy at large.
In carrying out this research, Diamond Bank of Nigeria, Ondo branch was
used as the case study where questionnaire were distributed as the primary
source of data and information were collected through secondary source. An overview of merger and acquisition
exercise between the years 2005-2015 was done in order to know those banks that
have existed in Nigeria before and after the years under review. After a thorough distribution of
questionnaires and analysis of the information gotten, a conclusion was drawn
that merger and acquisition has a great impact in banking industry & the economy
at large, also an instrument of revitalizing and boosting of banks capital base
so as to guarantee its active role in the economy. Recommendations were also made to relevant
stake holders to make adequate preparation for the purpose of tackling any
negative effect that might suffice after the exercise.
INTRODUCTION
The determination of
the federal government of Nigeria to release the economy from its devastated
state led to its effort to place it in the fare arena of unbridled economic
competitiveness as epitomized by its policy of deregulation and
privatization. The banking industry that
had hitherto been an engine room of the economy became a major “casualty” in
this regard.
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. 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 (Obadan, 1997).
Besides the
determination of the government to remove its hold on banks which it held
equity or statutory participation, it descended into banking arena with a
mandate that compel all commercial banks and Regional banks to increase their
shareholders fund to twenty five billion naira only (N25.000,000,000.00) and ten billion naira (N10,000,000,000.00)only respectively. Meanwhile this development has been effected
by the CBN between 2005 and till date and this has really strengthened the
banking industry and the economy as a whole.
This it to ensure the safety of depositors money, viability of
commercial banks in the country, active participation in the Nigerian economy
and be competent and competitive player In the global financial system.
All over the world and
considering the internationalization of finance, size has become an important
ingredient for success in the global world.
In the world of finance, no country can afford to operate in isolation, the
last few years, have witnessed the creation of the worlds banking group through
merger and acquisition. The trend has
been influenced by factors such as prospects of cost saving due to economy of
scale as well as more efficient allocation of resources, and risk reduction arising
from improved management.
Merger and acquisition
especially in the banking industry is a global phenomenon in the United State
of America, there has been over seven thousand cases of banks merger since
1980, a merger in France resulted in a new bank with a capital base of six
hundred and eighty eight billion Us dollars, while the merger of two banks in Germany
in the same year resulted into the second largest bank in Germany with a
capital base of Five hundred and forty one billion dollars.
More so, Nigerian banks witness
tremendous phases of merger and acquisition between the years 2006 to 2015
which has reduced more than eighty-nine banks before consolidation to nineteen banks after the consolidation exercise. This process made Nigerian banks to be more
viable and stronger as well as experiencing a multiple effect on their deposit
base, shareholders fund, asset base and other profitability status. Before now, we have 89 banks that are so
minimal and small with about 3,300 branches compare to this 8 banks in South
Korea with about 4,500 branches or the one in South Africa with larger assets
than all the banks in Nigeria presently.
The fact is that the
Nigerian banking system remains very marginal relative to its potentials and in
comparison to other countries before now, but after the consolidation exercise
between 2006 to 2015, Nigerian banks are becoming stronger and could compete
with many other banks globally even in the face of economic recession. In many emerging markets, including
Argentina, Brazil and Korea, consolidation has also become prominent, as banks
strive to become more competitive and resilient to shocks as well as reposition
their operations to cope with the challenges of the increasingly globalised
banking system.
According to Charles
Chukwuma Soludo (2004) in his paper titled “consolidating the Nigerian banking
industry to merit the developmental challenges of the 21st century :
” He emphasized that the Nigerian and
the world economy in the year 2025 and 2050, what I see is a world economy with
10-20 mega banks all over the world. I
see national and cross-national merger, acquisition, taking place in massive
scales. It will not be a world for
marginal or fringe players, countries that fail to proactively position
themselves today will wake up and continue to complain of marginalization and
this development is ongoing.
I can see Asia consolidating, America consolidating,
consolidation is taken place in South Africa as such that one bank in South
Africa, Amalgamated banks of South Africa (ABSA) has asset base larger than all
Nigeria commercial banks put together. Malaysia
has gone through its first round of consolidation whereby about 80 banks shrunk
to about 12 within one year”.
Statement
of the Problem
Merger
and acquisition exercise has been on the increase and common in most part of
the world today. This increase should
have been able to have positive impact in the area to profitability, efficient
delivery of credit facilities as well as economic revitalization as a
whole. However, the following questions
are tailored to examine the impact of merger and acquisition in banking
industry and the economy at large.
i.
What is merger and acquisition?
ii.
Will merger and acquisition boost
profitability?
iii.
What are the benefits/importance of
merger and acquisition?
iv.
Will merger and acquisition have
positive impact on banks, business and operations?
v.
Is there any distinction between merger
and acquisition?
vi.
Are there motives behind merger and
acquisition?
Some of these questions will be answered
in the course of this research work.
Objectives
of the Study
This research work has the following
objectives.
i.
To enumerate the positive impact of
merger and acquisition in the banking industry.
ii.
To find out the effect of merger and
acquisition on banks and the economy at large.
iii.
To uncover the reasons for merger and
acquisition
iv.
To discuss on the roles merger and
acquisition play in the economic development.
Hypothesis
Ho:
Represent merger and acquisition have no positive impact on banking industry
and the economy.
Hi: Represent merger and acquisition have
positive impact in banking industry and the economy.
Theoretical
Framework and Empirical Studies Merger: A Strategy for Development
According to Geofrey Knott (1998) the
word merger has been used so far as generic term describing the fusion of
assets of two or more businesses.
In a merger, the
boards of directors for two companies approve the combination and seek
shareholders' approval. After the merger, the acquired company ceases to exist
and becomes part of the acquiring company. A merger in 2007 was a deal between
Digital Computers and Compaq, where Compaq absorbed Digital Computers. (www.investopedia.com,
©2016)
According to Okonkwo
(2004)”merger occurs when two or more companies transfer their business and
asset to a new company (or to one of themselves) all in consolidation, their
members receives shares in the transferee company”
Merger is normally reserved for the
scheme of arrangement where.
i.
Both sets of shareholders agree to the
merger
ii.
Both set of Board of directors agree to
the terms and consolidation
iii.
The separate business continues after
amalgamation.
iv.
Individual business name ceases after
merger and a new combined name is formed by both companies (e.g in 1999 merger
of Glaxo wellcome and Smithkline Beecham, both firms ceased to exist when they
merge, and a new company, Glaxo Smithkline was created).
v.
Previous shareholders remain members of
the enlarged unit and retain some control over it.
In
pure sense of the terms, a merger happens when two firms agree to forward as a
single new company rather than remain separately owned or operated.
Acquisition:
A Tool for Stability
Acquisition
happens when one company takes over another and clearly establishes itself as
the new owner. From a legal point of
view, the target company ceases to exist the buyer swallows the business and
the buyers stock continues to be traded. “Acquisition occurs when one company
acquires sufficient shares in another company so as to give control of that
company. This may be by takeover or by purchasing shares in the market. Okonkwo,
(2004)
In an acquisition, the acquiring company
obtains the majority stake in the acquired firms, which does not change its
name or legal structure. An example of this transaction is Manulife Financial
Corporation's 2004 acquisition of John Hancock Financial Services. (www.investopedia.com ©2016)
According
to Geofrey Knott (1998)”acquisition is where an acquired company’s members give
up membership of the company, the consideration for the purchase of their share
or asset being cash, loan stock, convertible loan stock or a mixture of these”
the acquired company can either be wound up or continue, but its membership is
liquidated. For instance, in 2012, Access bank plc acquired Intercontinental
bank plc.
Overview of Merger and
Acquisition in Nigeria’s Bank Between (2005-2015)
Existing Banks in 2005 after
Merger and Acquisition (From 89-25 Bank)
S/N
|
NEW COMERCIAL BANKS
|
COMPOSITION
|
1
|
Access
Bank Plc
|
Access
bank, Marina Int’l bank, Capital bank Int’l.
|
2
|
Afribank
Nig Plc
|
Afribank
plc and Afribank Int’l(Merchant bank)
|
3
|
Bank
PHB plc
|
Bank
PHB plc and Habib bank Nig Ltd.
|
4
|
Diamond
Bank Plc
|
Diamond
bank, Lion Bank and Dercom bank Ltd.
|
5
|
Ecobank
Nig Plc
|
|
6
|
Equatorial
Trust bank
|
ETB
|
7
|
Fidelity
Bank Plc
|
Fidelity
bank, FSB Int’l bank and Manny bank.
|
8
|
First
bank Nig Ltd
|
First
bank plc, MBC Int’l bank and FSB (merchant bank)
|
9
|
First
City Monument bank
|
FCMB,
Coop. Dev. Bank, Nigeria American bank and Midas bank.
|
10
|
First
Inland bank plc
|
First
Antlantic bank, Inland bank Nig.Plc, IMB Int’l bank plc and NUB Int’l bank.
|
11
|
Guaranty
Trust Bank
|
|
12
|
IBTC
Chartered Bank plc
|
IBTC
Chartered bank plc and Regent bank plc
|
13
|
Intercontinental
Bank plc
|
Citizen
Intl.bank, ACB
|
14
|
Oceanic
bank Int’l plc
|
Oceanic
bank Int’l plc and Int’l trust bank
|
15
|
Nigeria
Intl bank
|
|
16
|
Skye
bank plc
|
Prudent
bank plc, Bond bank ltd, Reliance bank ltd, Cooperative bank plc and ETB bank
Int’l ltd
|
17
|
Spring
bank plc
|
Citizen
Int’l bank, Acb Int’l bank, Guardians Express bank, Omiga bank, Trans-Int’l
bank, and Fountain trust bank
|
18
|
Sterling
bank plc
|
Trust
bank, Africa ltd, NBM bank ltd, Magnum trust bank, NAC bank plc and
Indo-Nigeria bank.
|
19
|
Stanbic
Ibtc bank plc
|
|
20
|
Standard
chartered bank
|
|
21
|
United
bank for Africa plc
|
United
bank for Africa plc, Standard trust bank plc, Continental bank
|
22
|
Union
bank plc
|
Union
bank of Nigeria plc, Union Merchant bank ltd, Broad bank of Nigeria ltd and
Universal trust bank Nigeria plc
|
23
|
Unity
bank plc
|
Intercity
bank plc, First Interstate bank plc, Tropical Commercial bank plc,
Center-Point bank plc, Bank of the North, New Africa bank, Societe Bank ,
Pacify Bank and New Nigeria Bank
|
24
|
Wema
bank plc
|
Wema
bank plc and National bank of Nigeria ltd
|
Acquisition and
Capitalization Exercise of Commercial Banks between (2011-2012)
S/N
|
DISTRESED BANKS
|
NEW BANKS
|
1
|
Afribank
plc
|
Main
street bank ltd (bridge bank-AMCON)
|
2
|
Equatorial
trust bank
|
Sterling
bank plc
|
3
|
First
Inland bank
|
First
City Monument bank
|
4
|
Intercontinental
bank plc
|
Access
bank plc
|
5
|
Oceanic
bank plc
|
Ecobank
Nig. Plc
|
6
|
Spring
bank
|
Enterprise
bank plc (bridge bank-AMCON)
|
7
|
Platinum
Habib bank
|
Keystone
Bank ltd (bridge bank-AMCON)
|
8
|
Union
bank plc
|
Owned
by African Capital Alliance
|
Acquisition Exercise of
Commercial Banks In 2015
S/N
|
OLD OWNER
|
NEW OWNER
|
1
|
Main
Street bank
|
Skye
bank plc
|
2
|
Enterprise
bank
|
Heritage
bank plc
|
Existing Commercial
Banks As At March 2016
S/N
|
NAME
OF BANK
|
1
|
Access
Bank Plc
|
2
|
City
Bank Nigeria Ltd
|
3
|
Diamond
Bank Plc
|
4
|
Ecobank
Nig. Plc
|
5
|
Fidelity
Bank Plc
|
6
|
First
Bank Nig. Plc
|
7
|
First
City Monument Bank
|
8
|
Guaranty
Trust Bank Plc
|
9
|
Heritage
Bank Plc
|
10
|
Keystone
Bank Ltd
|
11
|
Skye
Bank Plc
|
12
|
Sterling
Bank Plc
|
13
|
Standard
Chartered Bank
|
14
|
Sun
Trust Bank Nig Ltd
|
15
|
United
Bank For Africa Plc
|
16
|
Unity
Bank Plc
|
17
|
Union
Bank Plc
|
18
|
Wema
Bank Plc
|
19
|
Zenith
Bank Plc
|
Research
Methodology
The
research was a descriptive one; therefore survey method was used because of the
large area to be covered. Population
used for this research work is Diamond Bank of Nigeria Plc, Ondo branch, which
consists of both management staff and customers. A random sampling technique was used. Data was collected through the use of questionnaire
which was analyzed with the use of a simple percentage method.
Analysis
of data:
Questionnaire
Administration
Question 1: Does merger and acquisition have an impact
on the banking industry and the economy?
Responses
|
No
of respondent
|
Percentage
|
Yes
|
15
|
100%
|
No
|
-
|
-
|
Total
|
15
|
100%
|
The table above
affirms 100% responses from the respondents that merger and acquisition will
have a significant impact on the economy.
Question 2: If yes what impact?
Responses
|
No
of Respondent
|
Percentage
|
Positive
|
13
|
87%
|
Negative
|
2
|
13%
|
Total
|
15
|
100%
|
The table above
shows that 87% of the respondents agree that merger and acquisition have
positive impact, while 13% belief that the impact is negative.
Question
3: Do you think merger and
acquisition is the best alternative tool for banks to boost their capital base?
Responses
|
No
of Respondent
|
Percentage
|
Positive
|
15
|
100%
|
Negative
|
-
|
-
|
Total
|
15
|
100%
|
The table above shows that 100%% of the respondents
confirm that merger and acquisition is the best alternative for banks to boost
its capital base.
Question
4: Do you think merger and acquisition will make banks to be more effective and
sound?
Responses
|
No
of Respondent
|
Percentage
|
Positive
|
13
|
87%
|
Negative
|
2
|
13%
|
Total
|
15
|
100%
|
The
table above shows that 87% of the respondents agree that merger and acquisition
will make bake to be more effective and sound, while 13% of the respondents
disagree with the above assertion.
Test
of Hypothesis
The
hypothesis formulated for this testing includes the null and alternate hypothesis. It is dependent on this testing.
Ho1:-
Merger and acquisition have no impact in banking industry and the economy.
Hi2:-
Merger and acquisition have an impact in banking industry and the economy.
This can be tested further based on the
response in the table below:
Option
|
Respondents
|
Percentage %
|
Yes
|
13
|
87
|
No
|
2
|
13
|
Total
|
15
|
100
|
Null
Hypothesis
Adverse: - 2/15 x 100/1
= 0.133x100
= 13.3%
Alternative
Hypothesis
Favour :- 13/15 x 100/1
= 0.8666 x 100
= 86.7%
This shows that 86.7% agreed that merger
and acquisition have impact on Diamond Bank Plc and the economy while 13.3 hold
a contrary view. Therefore, the
alternative hypothesis is accepted while the null hypothesis is rejected.
Findings
- Merger and
acquisition is the best alternative for banks to boost its capital base.
- Merger and
acquisition will strengthen banks in giving out loans to finance capital
project and large scale businesses.
- Merger and
acquisition will make banks to be more effective and sound.
- The
aftermath of merger and acquisition enhance banks to create more
businesses as well as expanding their scope of business.
- Merger and
acquisition will reduce interest rate on loans and reduce bank charges.
- Merger and
acquisition will lead to economic of scale by reducing operating cost and
increasing profit margins.
- Merger and
acquisition will increase revenue, market share and enhance synergy within
the banking industry.
- Merger and
acquisition will help in solving management problem as well as creating
shareholders wealth.
Considering the above
findings, the impact of merger and acquisition on the country’s economy, also
the strategic positive posture of merger and acquisition on business and adequate
capital has been urged to be the foundation of a safe banking system. The reason being the fact that a good and strong capital base gives a bank
competitive edge and enable it to provide better services and ultimately
increase its earning.
For a bank to be sound
and strong it has to meet the needs of its customers, its obligations as at
when due and plays a competitive role in strengthening the economy which
requires adequate capital, that can be generated through merger and
acquisition.
Therefore, merger and acquisition should
be given a chance to prove its benefits, strength and develop banks and the
economy at large.
Conclusion
After undergoing a research on the topic
“the impact of merger and acquisition in Banking Industry and the economy”, it
was discovered that merger and acquisition have more of positive impact on banking
industry and the economy.
It can be deduced that the only legal
mode for banks consolidation is merger and acquisition which is the best
alternative for Nigerian banking system.
Recommendations
Merger and acquisition have helped to
develop and revitalized various sectors of different countries and Nigeria
cannot be an exception, although for more and better performance and to have
tremendous success in strengthening economic as a whole, we therefore recommend
that:
i.
Corporate governance should be adhered
to at every stage of the exercise to ensure a safe landing for the bank
engaging in merger and acquisition exercise.
ii.
Professionals are to be employed to
handle responsibilities that require professional attention.
iii.
Policies and procedure laid down should
not be contravened at any point in time in the course of the exercise.
iv.
The Central Bank of Nigeria should help
to solve the problem of cultural differences which is one of the setbacks of
merger and acquisition.
v.
The interest of all parties to merger
and acquisition exercise should be considered and protected by the regulatory
authorities such as, shareholders, staff, investors, management board e.t.c.
vi.
Central Bank of Nigeria should monitor
and supervise the operations and management of banks before and after the
exercise.
vii.
There should be a proper integration and
alignment of processes and procedures so as to ensure proper implementation.
viii.
Government should develop strategies
that will cushion the effect of unemployment and other negative development
that may arise after merger and acquisition exercise.
References
Abok
P.A. (2006). Merger and Acquisition: Instrument of Banking Soundness. Unpublished
Charles,
C.S. (2004). “Consolidating the Nigerian Banking Industries to meet the
Developmental challenges of the 21st Century”
Clerk,
J.J. (1988). A Statistical Prior for Manager (New York, free press, a division
of Macmillan publishing co.inc.)
Knott,
G. (1998). Financial Management, third Edition (ebbro Vale, Britain Creative
print ad design)
Kolb
R.W. & Rogri gnez R.J (1996). Financial Management (Blackwell Publishers, Inc.)
Nwosu,
G.O. (2005). The Re-capitalization of Nigeria Banks in the 21st
Century. Unpublished
Okonkwo,
C.O. (2004). “Legal frame Work for Merger and Acquisition” A Paper presented at
the Retreat on Merger and acquisition.