IMPLICATION OF MERGERS AND ACQUISITIONS THEIR EFFECTS ON BANKS PERFORMANCE
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IMPLICATION OF MERGERS AND ACQUISITIONS THEIR EFFECTS ON BANKS PERFORMANCE
ABSTRACT
This study sought to ascertain the impact of mergers and acquisitions on bank performance in the context of the United Bank for Africa (UBA). The researcher’s goals in this study are to
Discover the financial consequences of mergers and acquisitions in the Nigerian commercial banking sector. Is it possible for mergers and acquisitions to solve the problem of financial insolvency? If there is any value to be gained from mergers and acquisitions, it is only through mergers and acquisitions that the commercial banking sector can survive, grow, and benefit (ie profit maximisation).
Can mergers and acquisitions be used to assess performance? As indicated, the researcher was a survey. The questionnaire was employed as the instrument. The obtained data was analysed and tabulated. The findings suggested that the Nigerian banking system may perform effectively, prosper, and maximise profit through mergers and acquisitions.
As a result of the fusion, an ideological challenge in determining organisational goals may occur. They have some legal implications, which are dependent on their economic impacts or legal states.
It also indicated that many shareholders are unaware of the consequences of mergers and acquisitions. Above all, the researcher made some recommendations that, if rigorously followed, would help the banking industry and all other investors.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The importance of banks in any country’s economy cannot be overstated. They are the foundations of a country’s economy. The economies of all market-oriented nations rely on the smooth operation of sophisticated and finely balanced money and credit systems.
Banks are an essential component of these systems. They supply the majority of the money supply and are the primary way of facilitating the flow of credit.”
As a result, it is proposed that a country’s economic well-being is a consequence of the advancement and development of its banking business (Obadan, 1997).
According to the value enhancing school, mergers occur in general because mergers generate’synergies’ between the acquirer and the target, and synergies raise the firm’s value (Hitt et al., 2001).
According to the theory of efficiency, mergers will only occur when they are projected to yield enough realisable synergies to make the deal beneficial to both parties; symmetric expectations of gains result in a ‘friendly’ merger being proposed and approved.
It is proposed that if the gain in value to the target was not positive, the target firm’s owners would not sell or submit to the purchase, and if the benefits to the bids’ owners were negative, the bidder would not complete the sale.
Mergers and acquisitions (M&As) are a worldwide phenomena, with an estimated 4,000 transactions occurring each year. However, they are not a new phenomenon; four periods of high merger activity, also known as merger waves, occurred in the United States in 1897-1904, 1916-29, 1965-69, 1984-89, and 1993-2000 (ILO, 2001; Jimmy, 2008; Mangold and Lippok 2008),
while M&As took place in Nigeria in 2004/2005 with effect from January 1, 2006 under the governorship of Professor Charles Chukwuma Soludo at the Central Bank of Nigeria (CBN). On his first month in office, Charles Soludo worked out the details of an agenda for repositioning the CBN and the financial system for the twenty-first century, with the goal of reducing the Nigerian banking system from 89 to 25 on or before December 31, 2005.
As a result, the phrases mergers, acquisitions, and consolidation are frequently confused, appear similar, and are sometimes used interchangeably. The three, however, have distinct meanings.
A merger is the combining of two or more organisations into one bigger organisation. Such activities are typically voluntary, and they frequently result in the creation of a new organisational name (sometimes combining the names of the original organisations).
In contrast, an acquisition is the purchase of one organisation by another. Such acts can be hostile or friendly, and the acquirer retains control of the acquired company.
Nigeria banking reform is a result of worldwide attempts to revitalise the global economy. Before the National Economic Empowerment and Development Strategy (NEEDS), there was the Millennium Development Goals (MDG), then the New Partnership for Africa’s Development (NEPAD) Strategy.
All of these had one thing in common: For a long time in the history of policy reforms in Nigeria, improving the banking sector has been given special attention. Various directives were issued to the banking industry in order to grow other industries, hence propelling the entire economy.
The restructuring impact, according to berger et al, (1998), is a dynamic effect of the (M&A) due to a shift in focus in which the institution alters its size, financial condition, or competitive position from their original values after consummating M & M.
In the above-mentioned simple example, the merging of the N600 million bank and the N400 million bank could result in a merged bank of just N810 million rather than the N1 billion bank.
This may happen, for example, if the mergers were intended to eliminate surplus banking capacity in the local market. This reduction in bank size from N1 billion to N810 million would certainly boost the share of assets committed to small businesses. Lending because smaller institutions make a greater proportion of these loans.
Mergers and acquisitions, as well as other forms of consolidation, may have an impact on bank interest rates, competition, and the transmission mechanism of monetary policy insofar as the increase in size and the opportunity for reorganisation involved may provide efficiency gains that bear marginal costs, or give rise to an increase in market power, or both.
According to Umoren (2007), merger and acquisition is simply another way of declaring survival of the fittest, which is to say a bigger, more efficient, better capitalised, and more competent industry. It is primarily motivated by company operations, market factors, and regulatory initiatives.
The issues that this study intends to address are whether mergers and acquisitions will result in an efficient, reliable, and sound capital base for banks that have fully embraced mergers, and to what extent can bank mergers boost customer confidence, investor confidence, shareholder confidence, and the ability to finance the real sector of the economy.
Because the importance of mergers and acquisitions cannot be overstated, the researchers were compelled to assess the perceived effects of mergers and acquisitions on Nigerian banking.
1.2 STATEMENT OF THE PROBLEMS
Over the years, the most troubling issues confronting bank mergers and acquisitions in Nigeria have included the following:
1. There is a merger problem in the productivity of Nigerian banks.
2. There is a difficulty with merging in restoring public trust in Nigerian banks.
3. The issue of bank mergers in successfully reducing bank failure in Nigeria.
4. There is a difficulty with merger and acquisition in boosting Nigerian banks’ services.
5. There is a difficulty with merger and acquisition in Nigeria to allow economic growth and stability.
6. There is a merger and acquisition dilemma in other sectors of the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The following are the primary goals that drew the researcher to this topic:
i. Determine the impact of the merger on the productivity of Nigerian banks.
ii. Determine if the merger will restore public trust in Nigerian banks.
iii. Determine whether bank mergers were successful in reducing bank failure in Nigeria.
iii. Determine whether mergers and acquisitions will improve the services provided by Nigerian banks.
v. Determine whether mergers and acquisitions will promote economic growth and stability in Nigeria.
vi. Determine whether bank mergers and acquisitions will have an impact on other sectors of the Nigerian economy.
1.4 SIGNIFICANCE OF THE STUDY
This research will be extremely beneficial to bank directors, prospective investors, employees, financial analysts, financial consultants, and the general public.
The study will also aid in the comprehension of participant banks that wish to merge. It will also result in the growth, extension, and improvement of Nigerian banks’ services. The research will also contribute to increased technical knowledge in the banking business.
This research will also serve as a guide and reference resource for other students performing comparable research on the same or similar issue.
1.5 RESEARCH QUESTION
The following are thought to be significant research questions for this study;
i. Does the merger influence the productivity of Nigerian banks?
ii. Does the merger restore public trust in Nigerian banks?
iii. Has bank merger helped to reduce bank failure in Nigeria?
iv. Do mergers and acquisitions improve the services provided by Nigerian banks?
v. Do mergers and acquisitions promote economic growth and stability in Nigeria?
vi. Do bank mergers and acquisitions have an impact on other sectors of the Nigerian economy?
1.6 RESEARCH HYPOTHESIS
The following research hypothesis was developed over the course of this study:
H0: Bank mergers have no effect on banking sector productivity.
H10: Bank mergers have an impact on banking productivity.
H0: Bank merger has not restored public trust in Nigerian banks.
H1: Bank merger has restored trust in Nigerian banks.
H0: Mergers and acquisitions have not improved Nigerian banks’ service.
H1: Mergers and acquisitions have enhanced Nigerian banks’ service.
1.7 SCOPE OF STUDY
The research would focus on mergers and acquisitions and their effects on bank performance in limited bank for Africa (UBA).
It would emphasise the importance of the investing public understanding the financial implications (involvement) in mergers and acquisitions before starting on them.
The researcher would view mergers and acquisitions as a crucial factor in overcoming economic recession as a key individual who would provide detected information about banks involved in merger and acquisition.
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