Full Project – EFFECT OF POST MERGER PERFORMANCE OF NIGERIAN BANKS

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CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Bank plays a crucial role in propelling the entire economy of any nation of which there is need to reposition it for efficient financial performance through a reform process geared towards forestalling bank distress.
In Nigeria, the reform process of the banking sector is part of the government strategic agenda aimed at repositioning and integrating the Nigeria 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 number of institution, structure of ownership as well as breadth and depth of operation. Similarly, a strong and virile economy depends to a very large extent on a robust, stable and reliable financial system including the banking sectors. This explains the frequency with which the Nigerian banking sector has witnessed repeated reforms aimed at fine-tuning it to meet the challenges for economic stability and developmental goals which are not only limited to domestic savings, mobilization and financial intermediation.

According to Umoh (2004), mergers and acquisition are expected to address the problem of distress among insolvent banks without an initial resort to liquidation. For Nigeria banking sector, out of the eighty nine (89) banks that were in existence before 31st December, 2005, only 25 banks met the consolidation requirements through mergers and acquisition agreement. Currently, only twenty four (24) banks exist in Nigeria due to the merger between Stanbic Bank Limited and IBTC Chartered Bank Plc. Okparachi (2007) asserted that there was loss of public confidence due to fear of liquidation of customer dissatisfaction in banking services as well as some obnoxious, unprofessional and other sharp practices within the industry. All these caused great distractions in financial system resulting to financial inefficiency which made investors not to have constant and high dividend as a result of inefficiency in terms of earning profit after tax and net assets.

Merger and acquisition are a global phenomenon with an estimated four thousand (4000) deals taking place every year. However, there have been recent development for periods of high merger activity also known as mergers waves occurred in the United States in 1897 – 1904, 1916 – 1929, 1965 – 1969, 1984 – 1989 and 1993 – 2000 (Ilo, 2001; Mimmy, 2008), while merger staged in Nigeria, in 2004/2005 with effect from January 2006 under the governorship of Professor Charles Chukuma Soludo worked out details of an agenda for repositioning the Central Bank of Nigeria and the financial system for the 21st century with an outcome of proving the Nigerian eighty nine (89) banks to twenty five (25) on or before December 31st, 2005.

In 2009, the Central Bank of Nigeria declared five (5) banks in Nigeria as insolvent. The banks were Afribank, Union Bank, Oceanic Bank, Bank PHB and Intercontinental Bank. In 2011, the Central Bank of Nigeria declares the takeover of Bank PHB, Sterling Bank and Afribank by investors, in other words, call for nationalization of these banks.

2009 – 2012 Distress Banks in Nigeria and the New Banks that Acquired Them

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