The Best Way to Success
1.1 BACKGROUND OF THE STUDY
Following 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 has taken place in the Nigerian Banking Sector shrinking the number of banks from 89 banks to 25 banks or banking groups involving 76 banks which altogether account for 93.5% of the deposit share of the market. Thirteen (13) out of the 89 banks, accounting for only 6.5% of the deposit share of the industry were not able to make it (CBN, 2006).
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.
Mergers and acquisitions represent the ultimate in change for a business and it is expected to add value to the business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. It is imperative that everyone involved in the process has a clear understanding of how the process works. However, merger and acquisitions do not add value in all cases (Ajayi, 2005). There are cases where the synergies projected for merger and acquisition deals are not achieved. “People” problems and cultural issues are often cited as the top factors in failed integrations.
While merger and acquisition activities constitute a growing area of study, the research currently suffers from several limitations. The problem most commonly cited is that the vast majority of work in the area is either based on case study in developed countries
Following 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 has taken place in the Nigerian Banking Sector shrinking the number of banks from 89 banks to 25 banks or banking groups involving 76 banks which altogether account for 93.5% of the deposit share of the market. Thirteen (13) out of the 89 banks, accounting for only 6.5% of the deposit share of the industry were not able to make it (CBN, 2006).
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.
Mergers and acquisitions represent the ultimate in change for a business and it is expected to add value to the business. No other event is more difficult, challenging, or chaotic as a merger and acquisition. It is imperative that everyone involved in the process has a clear understanding of how the process works. However, merger and acquisitions do not add value in all cases (Ajayi, 2005). There are cases where the synergies projected for merger and acquisition deals are not achieved. “People” problems and cultural issues are often cited as the top factors in failed integrations.
While merger and acquisition activities constitute a growing area of study, the research currently suffers from several limitations. The problem most commonly cited is that the vast majority of work in the area is either based on case study in developed countries
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. Central Bank of Nigeria (2006), Press Release, January. Abuja. Okonkwo C. O. (2004). “Legal Framework for Mergers and Acquisitions.” A Paper Presented at The Retreat on Mergers and Acquisitions in the Nigerian Banking Industry organised by Central Bank of Nigeria and West African Institute for Financial and Economic Management (WAIFEM). Abuja. Sanusi L. S. (2010) The Nigerian Banking Industry: what went wrong and the way forward. Being the full text of a Convocation Lecture delivered at the Convocation Square, Bayero University, Kano, on February 26.