Mergers and acquisition of banks: processes and procedures
Mergers and acquisition in the Nigeria banking sector are reform strategies recently adopted to reposition the banking sector.
Simply put, it is the merging and acquiring all the assets of those banks who are unable to meet up with the CBN standard.
These were done to achieve improved financial efficiency, forestall operational hardships and expansion bottlenecks
Hence, banks play a crucial role in propelling the entire c of the nation of which there is need to reposition it for efficient financial performance through a reform process geared towards forestalling bank distress.
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In Nigeria, the reform process of 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.
To make the Nigerian banking sector sound, according to Akpan (2007) 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. 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 the international regulations and standard.
Similarly, a strong and virile economy depends to a very large extent on a robust, stable and reliable financial system including the banking sector. This explains the frequency with which the Nigerian banking sector has witnessed repeated reforms aimed at five-timing it to meet the challenges of economic stability and developmental goals which are only limited to domestic savings mobilization and financial intermediation but also the elimination of inefficiency to enhance financial efficiency. The financial efficiency parameters are determined and measured by gross earnings, profit after tax and net assets.
With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent. Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry. Mergers and acquisition in banking sector are form of horizontal merger because the merging entities are involved in the same kind of business or commercial activities.
In many countries, global or multinational banks are extending their operations through mergers and acquisitions with the regional banks in those countries. These mergers and acquisitions are named as cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions in the banking sector. By doing this, global banking co-operations are able to place themselves into a dominant position in the backing achieve economics of scale as well as garner market share.
Therefore, those banking reforms was built primarily on four (4) cardinal principles including enhancement of the quality of banks, establishment of financial stability, creating a healthy financial sector evolution and ensuring that the financial sector contributes to real economy.
Ajayi (2010), Garba, (2009) and Augustine (2007) stated that other programmes in the Nigerian banking sector reforms agenda includes ensuring exchange rate and price stability, managing interest rate for stability and development, macro-economic co-ordination, improvements of the payment system and financial sector diversification avoid a situation of boom and bust that can result to bank distress. This, Walter and Uche (2007) supported.
However, for Akpan (2007), recapitalization through mergers and acquisitions is not a new development in the Nigerian banking sector but a chain of similar events that have been since 1952.
According to Rewane (2009) and Sobawale (2010), recapitalization through mergers and acquisitions has however generated a lot of controversies in the Nigerian banking sector. Most of the key players in the sector saw the time frame within which to meet the requirements as unrealizable.
For Walter and Uche (2009) the timing of the exercise was also seen as unfavourable given the current economic condition, the prevailing business atmosphere of inflation and diminishing savings and investments. The Nigerian banking sector witnessed 25 mergers and acquisitions activities. For this, mergers and acquisitions is not a new scheme geared towards business survival but more importantly assist in repositioning the industry with its position multiplier effects on the economy.
Umoh (2007) noted that the unprecedented liquidation of twenty six (26) Nigerian banks in 1994/1995 did not put an end to the distress syndrome. This recently manifested when in August 14th, 2009 CBN declared five(5) Nigerian banks liquid as a result of inadequate capital ratio due to reckless lending, followed by two others on 2nd October 2009 which resulted to the immediate sacking of the affected banks managing directors. For Muhammed (2009) most Nigerian banks were becoming personalized in ownership and management structures which made the banks incapable to finance large scale and long term projects due to limited liquidity at their disposal. The sector was characterized with import financing rather than encouraging domestic growth in the economy.
But for Straub (2007), mergers and acquisitions have often failed to add significantly to the performance of the banking sector.
The merger and acquisition in Nigeria banking sector as from 2007 till date are stated as follows:
- Access bank acquired Intercontinental bank.
- City bank
- Diamond bank
- ECO bank acquired Oceanic bank.
- Enterprise bank formerly Spring bank.
- Fidelity bank Nigeria.
- First bank
- First City monument bank acquired FIN bank
- Jaiz bank
- Key stone bank formerly bank PHB.
- Guaranty Trust Bank
- Main Street Bank
- Savannah Bank
- Skye bank
- Stan Bic IBTC bank Nig. Ltd
- Standard Chartered bank.
- Sterling bank acquired equatorial trust bank
- Union bank of Nigeria
- united bank of Africa (UBA)
- Unity Bank Plc.
- Wema bank
- Zenith bank