EFFECT OF POST MERGER PERFORMANCE OF NIGERIAN BANKS
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EFFECT OF POST MERGER PERFORMANCE OF NIGERIAN BANKS
ABSTRACT
The performance of Nigerian banks after merger is examined in this study. The study’s main goal is to compare the financial performance of Nigerian banks before and after their merger. Consolidating (mergers and acquisitions) is now viewed by business organisations as an alternative to recapitalization.
Some of the merged banks are still in trouble and dealing with the issues that prompted the consolidation in 2005, such as weak risk management and subpar corporate governance procedures. The study uses a stratified questionnaire as its main method of data collection.
In order to remove bias from the population, the sample size of two banks (First Bank of Nigeria Plc and United Bank of Africa UBA) was selected.
The various assumptions were tested using the statistical method known as the z-test. According to the study, UBA’s post-merger and pre-merger performance on non-financial measures from the balance scorecard differed significantly.
Furthermore, utilising non-financial metrics from the balance score card, there are notable differences between the FBN post-merger and pre-merger.
The report suggested, among other things, that commercial banks conduct an annual evaluation of the performance of the post-merger period’s balance scorecard performance indicators.
INTRODUCTION
BACKGROUND OF THE STUDY
When a country has to reposition its economy for effective financial performance through a reform process intended to prevent bank distress, banks play a critical role in boosting the whole economy.
The Nigerian banking sector is undergoing reform as part of the government’s strategic plan to strengthen the Nigerian banking sector and reposition it within the African, regional, and international financial systems.
Akpan (2007) asserts that the industry has witnessed notable changes in terms of the number of institutions, ownership structure, and scope and depth of activity over time.
Similar to this, a successful and healthy economy heavily depends on a solid, trustworthy, and stable financial system, including the banking industries.
This explains why the Nigerian banking industry has undergone numerous reforms in an effort to fine-tune it to satisfy the demands of economic stability and developmental aims that go beyond domestic savings, mobilisation, and financial intermediation.
Umoh (2004) asserts that mergers and acquisitions are anticipated to alleviate the issue of distress among bankrupt banks without first turning to liquidation. Only 25 banks in Nigeria’s banking sector met the consolidation requirements through merger and acquisition agreements out of the 89 banks that were operational before the end of 2005.
In Nigeria, there are currently just twenty-four (24) banks due to the merger of Stanbic Bank Limited and IBTC Chartered Bank Plc. According to Okparachi (2007),
there has been a decline in public confidence as a result of some rude, unprofessional, and other shady practises within the sector, as well as a fear of the liquidation of customer unhappiness with banking services.
All of these led to significant disruptions in the financial system, which led to financial inefficiency. As a result, investors were unable to receive consistent and large dividends due to inefficiencies in the generation of profit after tax and net assets.
There are an estimated 4,000 merger and acquisition agreements every year, making it a global phenomena. While mergers were staged in Nigeria in 2004/2005 with effect from January 2006 under the governorship of Professor Charles Chukuma Soludo, details of an agenda for repositioning the Central Bank of Nigeria and the financial system for the 21st century were worked out (Ilo, 2001; Mimmy, 2008).
However, there have been recent developments for periods of high merger activity, also known as mergers waves, occurred in the United States in 1897 – 1904, 1916 – 1929, 1965
Five (5) Nigerian banks were deemed insolvent by the Central Bank of Nigeria in 2009. Afribank, Union Bank, Oceanic Bank, Bank PHB, and Intercontinental Bank were the participating banks.
The takeover of Bank PHB, Sterling Bank, and Afribank by investors is declared by the Central Bank of Nigeria in 2011, thereby calling for the nationalisation of these banks.
Nigerian Distress Banks from 2009 to 2012 and the New Banks that Purchased Them
S/N
Default Banks
Assignee: Their New Owner
1.
AFRIBNK Plc.
Majority Bank Limited
2.
Bank of Equatorial Trust
Currency Bank Plc.
3.
Bank First Inland
Bank First City Monument
4.
International Bank Group
PLC Access Bank
5.
Pacific Bank Plc.
Nigeria’s Ecobank Plc.
6.
Winter Bank
Business Bank Ltd.
7.
Bank of Platinum-Habib
Keystone Bank, Limited
8.
UB Group Plc.
African Capital Partnership
(2010) Johua as a source
There were numerous instances of serious bank failure prior to the founding of the Central Bank of Nigeria in 1958, and an unhealthy capital adequacy basis contributed to an innumerable number of reasons for bank failure, including the use of the wrong determinants of capital adequacy.
The 1930s saw Nigeria experience its first bank failure and unhealthy capital adequacy when twenty-one (21) banks were declared insolvent. Eight (8) banks were deemed to be weak in Nigeria’s second bank failure in 1989, and by 1998, there were a total of thirty-one (31) banks in difficulty.
In 2004, the third bank failure in Nigeria occurred, resulting in the reduction of 89 banks in Nigeria to 25, or 64 banks that were considered to be in troubled states.
Regulators’ incapacity to monitor these banks’ operations is the cause of this. The next ten years are expected to see several mergers and acquisitions across the economy, not just in the banking industry, as a result of changes in a number of other economic sectors.
1.2 STATEMENT OF THE PROBLEM
Recently, business organisations have begun to view consolidation (mergers and acquisitions) as a different type of recapitalization strategy. Some of these banks are now considering bank mergers and acquisitions due to the current trend of requiring all commercial banks to increase their capital base from two (2) billion to twenty-five (25) billion naira on or before December 31, 2005.
Some of the amalgamated banks are still in trouble and dealing with the issues that prompted the consolidation in 2005. Following the consolidation, these issues led to increased bank distress, which is characterised by job losses and causes untold hardship in the nation.
These issues include poor risk management, poor corporate governance practises, an excessive reliance on public sector funds, weak infrastructure, inadequate regulation and reporting, weak credit assessment skills, a lack of professionalism, and a skills gap. As a result, the sector is now less liquid.
This study aims to ascertain the post-merger performance of Nigerian banks notwithstanding the merger and acquisition and how much better they are now based on the aforementioned fundamentals. These are the primary issues with this study, especially with First Bank and UBA Bank Plc.
1.3 RESEARCH QUESTIONS
1. Is there a connection between the financial performance of Nigerian banks after their merger and before?
2. Is there a connection between development and learning in Nigerian banks post-merger?
3. Does the effectiveness of business processes before and after mergers differ in Nigeria?
4. Is there a connection between client satisfaction in Nigerian banks before and after mergers?
1.4 OBJECTIVES OF THE STUDY
Examining the post-merger strategic performance of merged banks is the study’s main goal. The precise goals were to:
1. Examine the relationship between the financial performance of Nigerian banks after and before the merger,
2. determine the association between learning and growth after and before mergers in Nigerian banks,
3. compare the effectiveness of business processes in Nigeria before and after mergers, and
4. Examine the relationship between customer satisfaction in Nigerian banks before and after mergers.
1.5 RESEARCH HYPOTHESES
The following hypotheses, presented in the null form and alternative form, were addressed based on the research question and objectives.
First Hypothesis
HO: There is no correlation between the financial performance of Nigerian banks post- and pre-merger.
Hi: There is a correlation between the financial performance of Nigerian banks after and before merger.
Second Hypothesis
HO: There is no correlation between development and learning in Nigerian banks post- and pre-merger.
HI: In Nigerian banks, growth and learning have a correlation with one another.
3. Hypothesis
HO: In Nigeria, there is no difference between the efficiency of pre- and post-merger business operations.
HI: In Nigeria, the efficiency of the pre- and post-merger business processes varies.
Fourth Hypothesis
HO: In Nigerian banks, there is no correlation between pre- and post-merger client happiness.
In Nigerian banks, there is a correlation between pre- and post-merger customer satisfaction.
1.6 SIGNIFICANCE OF THE RESEARCH
A study must have an effect on the society it is researching in order to demonstrate its importance. The following will make this research pertinent:
Researchers: It will act as a point of reference for their interest in the future.
Shareholders: It will increase shareholders’ understanding of the impact of mergers and acquisitions following consolidation.
Society: It will act as a foundation for educating the general public on tax-related issues and their implications during mergers and acquisitions.
Government: It will make it possible for the government to oversee and control merger and acquisition potential.
1.7 SCOPE OF THE STUDY
The study investigates the amalgamated banks’ post-merger strategic performance. First Bank of Nigeria and United Bank of Africa (UBA) are the two banks under investigation in the study. The geographical area of this study is Edo State, and the time period is between 2010 and 2015 (i.e., 5 years).
1.8 LIMITATIONS OF THE RESEARCH
Due to its sensitive character in relation to the expansion and development of the nation’s economy, the limits on the post-merger performance of Nigerian banks are as follows:
1. Finance: This project’s smooth execution was hampered by a lack of suitable and sufficient funding to cover the costs of data collection and information processing.
2. Lack of essential books in the school library: There are few or no pertinent literature textbooks to compile the knowledge available.
3. Being unable to gather an accurate random sample.
4. The size of the sample, which consists of First Bank Plc and UBA Bank Plc, two sizable institutions.
1.9 DEFINITION OF TERMS
The Balanced Score Card (BSC) is a strategic performance management tool that allows managers to keep track of how the employees under their control are carrying out their duties and the results of those actions. The BSC is a semi-standard report that is supported by design methodologies and automation tools.
Profitability is the ability to make a profit or gain financially.
Merger: The voluntary combination of two businesses into one new legal company on essentially equal terms.
Prior to the merger of two businesses into a single, relatively equal-sized organisation.
Post-merger: Refers to the period following the roughly equal merger of two businesses into a single new legal entity.
Bank: A bank is a type of financial institution that lends money to borrowers in order to establish credit and record the resulting deposit on the bank’s balance sheet.
Consolidation: The merger of two or more corporations into one new, combined corporation by combining the former entities.
Acquisition: A corporate move in which a corporation purchases the majority, if not the entire, of the ownership holdings of the target company in order to take over management of the target business.
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