ABSTRACT
This study aim at analyzing the effect
of merger and acquisitions on the performance and growth of financial
sector within the span of 2005-2012. The broad objective of this
research work is to examine if there is a significant difference in the
pre and post mergers and acquisitions periods of banks in terms of gross
earnings and also to examine if there is a significant difference in
the pre and post mergers and acquisitions periods of banks in terms of
profits after tax and net assets. The data were collected from the
annual report of three banks namely Sterling Bank Nigeria plc, Access
Bank plc and Eco Bank of Nigeria plc for the period of 2005-2012. The
Ordinary Least Square (OLS) were employed using E-view Statistical
Method. The result of the analysis shows that there is a significant
difference in the pre and post mergers and acquisitions periods of banks
in terms of gross earnings and also that there is a significant
difference in the pre and post mergers and acquisitions periods of banks
in terms of profits after tax and net asset. Based on these findings,
it is recommended that government should strengthen the financial sector
by encouraging merger and acquisitions in Nigerian banks.
TABLE OF CONTENTS
TITLE PAGE
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
Table of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 2
1.3 Objectives of the Study 3
1.4 Research Questions 4
1.5 Research Hypotheses 5
1.6 Significance of the Study 6
1.7 Scope and Limitation of the Study 6
1.8. Definition of Terms 6
CHAPTER TWO: LITERATURE REVIEW
2.1. Conceptual Framework 9
2.1.1. Merger and Acquisition 9
2.1.2. Banking Sector Performance 12
2.2 Empirical Review 12
2.3. Theoretical Review 24
2.4. Summary 31
CHAPTER THREE: RESEARCH METHODOLOGY
3.1. Introduction 34
3.2. Re-Statement of Hypotheses 34
3.3 Specification of Model 35
3.4 Research Methodology 36
3.5 Source of Data 36
3.6 Methods of Analysis 36
3.7. Limitation of Methodology 37
CHAPTER FOUR:ANALYSIS AND INTERPRETATION OF DATA
4.1 Introduction 38
4.2. Data Presentation on Sterling Bank of Nigeria Plc For Pre 38
(1997- 2004) and Post (2005-2012) MERGER.
4.3 Data Presentation on Access Bank for African Plc for Pre 44
(1997- 2004) and Post (2005-2012)
4.4 Eco Bank Nigeria Plc extracted financial efficiency 49
parameters (1997 to 2004) pre merger and (2005-2012)
post merger .
4.3. Conclusion 53
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 55
5.2 Summary of Findings 55
5.3 Conclusions 56
References 59
Appendix 73
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
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 (Bauer, 2009).
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, the
economic well being of a nation is a function of advancement and
development of her banking industry (Obadan, 2007).
The financial deregulation in Nigeria
that started in1986 and the associated financial innovations have
generated an unprecedented degree of competition in the banking
industry. The deregulation initially pivoted powerful incentives for the
expansion of both size and number of banking and non-banking
institutions (Chatterjee, 2006).
The consequent phenomenal increase in
the number of banking and non-banking institutions providing financial
services led to increased competition amongst various banking
institutions, and between banks and non-banking financial
intermediaries.
Banks play a crucial role in propelling
the entire economy of any nation, of which there is need to reposition
it for efficient financial performance through a reform process geared
towards forestalling bank distress.
In Nigeria, the banking sector is part
and parcel of the government strategic agenda aimed at repositioning and
integrating the Nigerian banking sector into the African regional and
global financial system in order to make the Nigerian banking sector
sound, the sector has undergone remarkable changes over the years in
terms of the number of institutions, structure of ownership, as well as
depth and breadth of operations (Akpan 2007). These changes have been
influenced mostly by the challenges posed by deregulation of the
financial sector, operations globalization, technological innovations,
and implementation of supervisory and prudential requirements that
conform to international Soludo (2004) opined that, the Central Bank of
Nigeria(CBN) chose to begin the Nigerian banking sector reforms process
with the consolidation and recapitalization policy through mergers and
acquisitions. This is done in order to arrest systems decay, restoration
of public confidence, building of strong, competent and competitive
players in the global arena, ensuring longevity and higher returns to
investors considering the regulations and standards.
Inability of most Nigerian banks to
perform well due to operational hardship, expansion bottlenecks as a
result of heavy fixed and operating costs coupled with volatility
between deposits and lending rates, the present banking sector reforms
in Nigeria was announced by Chukwuma Soludo, the then CBN governor on
July 6th, 2004 with the objective of creating a sound and more secure
banking system that depositors can trust through mergers and
acquisitions which enhanced operational capital base. These and many
more, act as a springboard to achieving improved efficiency. However,
this research work will examine effect of merger and acquisitions on the
performance and growth of financial sector.
1.2 Statement of the Problem
The Nigerian banking system has
undergone remarkable changes over the years in terms of the number of
institutions, ownership structure as well as development of the
grassroots area. The changes have been influenced by challenges posed by
deregulation of the financial sector, globalization, technological
innovation and adoption of supervisory and prudential requirements that
conform to international standard (Adeniyi 2010).
The recent incident of bank mergers and
acquisitions in Nigeria is attracting much attention, partly because of
heightened interest in what motivates firms to merge and how merger and
acquisition affects performance or efficiency as well as banks output.
The banking system has also been plagues by sharp practices, fraud and
forgeries especially by in-house managers and other connected person.
However, the vital importance of merger
on the performance of banking industry has not been fully explored
thereby creating a research gap in this area. Hence, this research work
will examine effect of merger and acquisitions on the performance and
growth of financial sector.
1.3 Objectives of the Study
The general objective of this research
work is to examine the effect of merger and acquisitions on the
performance and growth of financial sector. However the specific
objectives are;
- To examine if there is a significant difference in the pre and post
mergers and acquisitions periods of banks in terms of gross earnings.
- To examine if there is a significant difference in the pre and post
mergers and acquisitions periods of banks in terms of profits after tax.
- To examine if there is a significant difference in the pre and post
mergers and acquisitions periods of banks in terms of net asset.
1.4 Research Questions
The research questions that are relevant to this study are state below:
(i) Is there a significant
difference in the pre and post mergers and acquisitions periods of banks
in terms of gross earnings?
(ii) Is there a significant
difference in the pre and post mergers and acquisitions periods of banks
in terms of profits after tax?
(iii) Is there a significant
difference in the pre and post mergers and acquisitions periods of banks
in terms of net asset?
1.5 Research Hypotheses
The hypotheses that were tested in the course of this research are stated below:-
Hypothesis 1
Ho: There is no significant difference in the pre and post mergers and acquisitions periods of banks in terms of gross earnings.
H1: There is a significant difference in the pre and post mergers and acquisitions periods of banks in terms of gross earnings.
Hypothesis 2
Ho:
There is no significant difference in the pre and post mergers and
acquisitions periods of banks in terms of profits after tax.
Hi: There is a significant difference in the pre and post mergers and acquisitions periods of banks in terms of profits after tax.
Hypothesis 3
Ho: There is no significant difference in the pre and post mergers and acquisitions periods of banks in terms of net asset.
Hi: There is a significant difference in the pre and post mergers and acquisitions periods of banks in terms of net asset.
1.6 Significance of the Study
The significance of the study is to give
enlightenment on the effect of merger and acquisitions on the
performance and growth of financial sector and also to justify the
merger and acquisition exercise as directed by the CBN and its effect on
the economy as a whole. Stakeholders and general public will benefited
from the research work. Moreso, Academics and students will appreciate
the usage of this research as part of their reference material.
1.7 Scope and Limitation of the Study
The subject matter of the study was
limited to a period of 8 years (2005-2012). The period is important in
order to derive more realistic conclusion and recommendations
while the study will also be constrained by the time among others.
1.8. Definition of Terms
Merger: This is a situation where two or more independent companies combine to form a new company.
Acquisition: This is
where one company takes over the control of another company by buying
all the shares or sufficient shares to enable them have controlling
power in the company.
Consolidation: 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 entitles in the sector (BIS, 2001)
Strategy: According to
Onwuchekwa, (2009) strategy is an integrated plan through which a
business organization accomplishes its objective, or rather as an
overall response of a business organization over its environment.
Reform: Predicated upon
the need for reorientation and repositioning of an existing status quo
in order to attaining an effective and efficient state.
C.A.M.E.L It is a
parameter used in accessing the health of banks where C stands for
capital adequacy, A stands for Asset quality, M stands for Management
and staff, E stands for Earning and profitability, L stands for
Liquidity and fund management.
Capital Base: It is paid up capital and reserved unimpaired losses.
Capitalization: Provision of money needed by company to function effectively and efficiently.
Central Bank of Nigeria (CBN): It
is the apex bank in Nigeria banking sector or industry that represent
the government of the country and also act as the banker to the
government in the area of financing, advertising on monetary policies
and implementation.
C.T.C Certified True Copy
Distressed Bank: These are banks that are unable to meet its obligation, both in the society and to their depositors.
Due Diligence: This is a
phrase in merger and acquisition prices where parties explore the risk
inherent in purchasing or merging will another company.
F.S.A.P: Financial Sector Assessment Programme
Memorandum of Understanding (MOU): It is an undertaking by the parties top the pre-merger arrangement or programme.
