Top of Form
Bottom of FormCHAPTER ONE
1.0 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 concept of recapitalization refers to the current trend of compelling all commercial banks to raise their capital base from 2billion to 25billion 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. * Poor asset quality.
* Weak corporate governance; A system with low depositor confidence. * Banks that could not effectively support the real sector of the company at 24% of GDP, compared to Africa average of 78% and 272% for developed countries. 1.0.1 THE VISION OF CONSOLIDATION ARE AS FOLLOWS:
* As Africa's financial centre and CBN as one the best in the world * Facilitate evolution of a strong and safe banking system * Improve transparency and accountability in the sector
* Drive down the cost structure of banks and make them more competitive and development oriented * A new Banking system that depositors can trust and investors can rely upon usher in a new economy There are indications that banks are now favourably disposed to Consolidation (merger and acquisition) after considering various options available to them on account of the introduction of the 25billion Naira recapitalization, which will also send most of the banks Managing Directors and their boards to meetings and marshalling of game plans from the preliminary reports from the negotiation table, banks could have several options to explore. In an attempt for banks to meet up with the new requirement, some Banks are exploring the option of inviting foreign investor to buy into Banks. Other are looking at the possibility of getting investor to shore up their capital, and some are looking at the capital market option, while others are considering mergers and acquisition. This process of recapitalization of recapitalization and restructuring of Nigeria (commercial) banks has been gathering pace since the decision was made by CBN on the recapitalization of Nigeria Banks from 2billion to 25billion naira by December 31st, 2005. The proposed recapitalization as confirmed by the CBN governor, Professor Charles Soludo, is a subtle way to compel Nigeria Banks to merger so as to strengthen in totality the Nigeria banking system through Consolidation (mergers and Acquisition). The process would further enable the banking sector to meet up with international standards. Apart the pronunciation by Professor Charles Soludo, the recent change in banking has necessitated the need for different banks to engage in corporate Consolidation. The Oxford Advance learner English dictionary fourth edition (1999), defines consolidation as a positive of power or success stronger so that it is more likely to continue and Merger as the combination of commercial companies into one. Acquisition on the other hand was defined by another source as a company taking a controlling ownership interest in another firm, could be legal subsidiary of another firm or selected asset of another firm. It may involve the purchases of another firm asset or stock with the acquired firm continued to exist as a legally owned subsidiary require. For the...