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THE
IMPACT OF STRENGTHENING AND CONSOLIDATION THE NIGERIAN BANKING SYSTEM
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A business
combination takes place when two or more business organization come together to
form a single economic unit. Business combinations; could take the form of
merger and acquisition where two or more previously autonomous concerns come
together under common control, there is a formation of a new company, which
acquires the (assets and possible the liabilities) of two or existing business.
Merger and
acquisition are the fastest ways for a business to dramatically change its
position in the market place (i.e.
acquisition of a wide market area). Either transaction can alter the
fundamental dynamics of an organization
almost over night by changing the scope
or breath of products services the business
renders as well as the model under which it competes.
When the
board of directors of two companies agrees to come together (amalgamate) in the interest of both
mergers is the right term. On the other hand, a company
wanting to gain control of the another business whose board not recommend the
change is said to be attempting to take over the company. Acquisition may be
defined as an act of acquiring effective control by one company over an asset
management of another company without any combination of companies when
management of acquiring company target company
mutually and willingly agree for the takeover, its called acquisition of
friendly takeover embrace the practice of merger and acquisition in the years
to come. This is so because the promulgation of the Nigerian investment
promotion commission decree of 1995, which gave foreigners and foreign
companies unfettered access to own up to 100% in Nigerian companies and bank. This decree repeated the exchange
control act of 1962 and Nigerian
enterprises promotion decree of 1988, which used to choke foreign investment
interests. The old ratio of 60% to Nigerians and 40% to foreigner stipulated by
Nigerian enterprises promotion act by
1988 changed. Armed with the new investment promotion commission decree of
1995, foreign stakeholders in Nigerian companies quoted and unquoted have been scheming and
maneuvering to exchange their status
for the better. The statistics
from securities and exchange commission shows that the share of foreign
shareholding in Nigeria Nigeria
1.2 STATEMENT OF RESEARCH PROBLEM
In a
lecture deliver to a special committee of bankers by professor Charles Soludo
on July 6th 2004 titles “consolidating the 21st century,
says the Nigeria Nigeria
-
High leading
rate
-
Sharp practice
in the forex market
-
Low capital base
-
Most banks make
profit through unethical means which is
their core banking business.
It is in
the view of this, the verdict of professor Charles Soludo, Governor of Central
Bank of Nigeria on 6th of
July 2004 that all
Nigeria bank are to beef up their
capital base from N2 billion to
N25 billion by the December 2005 will definitely help in this regard.
The banking
system however has continued to be characterized by a number of structural
problems some of which include:
-
Low capital base: the average capital base of Nigeria banks is us and 10 million, which is
very low compared to that of banks in
other developing countries similarly the
aggregate capitalization of Nigerian banking system was N2.67 billion a t the
end of December 2003 is grossly low
relative to the size of the Nigeria
-
A large number of
small banks with relatively few branches dominated by a few bank
out of 89 banks as at December 2003,
bank controlled 50.10% of the aggregate
assets; 51.49% total deposit liabilities ands 43.27% of the aggregate credit.
-
Weak corporate governance
-
Insolvency
-
Over-dependence on public sector deposit and foreign
exchange trading.
-
The neglect of small and medium scale private savers.
The implication is that its financial intermediate function has become impaired while depositors
confidence has materially wanted. It was on the basis of this concerns that the
CBN Governor concerned a special meeting
on the July 16th 2004 to unfold a reform packages for the
resuscitation of the Nigerian banking
system.
-
The present situation in Nigerian economy makes it
mandatory for the pooling together of resources in order to avoid all problems
mentioned above. Merger and acquisition are valuable way to harness the
synergies of similar organization.
1.3 OBJECTIVES
OF THE STUDY
The aim of
this research work is to bring to light the comparative analysis of merger and acquisition
in Nigeria
-
To show the benefit of merger and acquisition on Nigeria
-
To investigate the
performance of bank prior and after merger and acquisition.
-
To investigate into problems faced by banks in mergers
and acquisition.
-
To investigate
into Nigeria
-
To investigate ways in which merger and acquisitions could be attractive to the Nigeria
1.4 RESEARCH
QUESTIONS
-
What benefit has been achieve in terms of economic
development in Nigeria
-
How have banks that go into merger and acquisition
preformed prior and after merger and acquisition?
-
How has the quality of financial products available to customers been after the mergers
and acquisition?
-
What are ways
to make merger and acquisitions more attractive to Nigerian companies?
-
What are the problems militating against merge and
acquisition is Nigeria
1.5 SCOPE
OF THE STUDY
The study
on comparative analysis of merger and acquisition in Nigerian banking sector will be carried out within the scope of platinum bank
Nigeria limited and Habib bank international (Bank PHB) prior from 2003 to 2005 and 2005 to 2007. Hence,
information data will apply mainly to the organization fixed
assets and liability.
1.6 SIGNIFICANCE OF THE STUDY
In this
study those that will benefit mainly are
they:
i.
Banks: the study intends to come up with
the means of survival,
growth for this present and future
bank in Nigeria
ii.
General public: the knowledge of merger and
acquisition and other business combination in the business community as a way
out of financial distress will enhance the
nations economic development in time
of economic downturn and recommendation
made will be of immense importance to the bank under study.
iii.
Shareholders: the shareholders will also gain from
this consolidation exercise through effective allocation of resources, which would
equally increase their dividends and risk reduction arising from improved
management.
1.7 HISTORICAL
BACKGROUND OF THE STUDY
The board
of director of platinum Bank Plc had been in discussion and negotiation with
the directors of Habib Nigeria Bank Plc
on the proposal to merger the banks incompliance with
the central bank directives that all
Nigerian banks most raise their shareholders funds to N25 billion by the 31st
December 2005 as the deadline. The merger was effected through a scheme of
merger (the scheme) under section 100 of the investment and securities Act
(Isa) 1999.
Habib
Nigerian bank was incorporated as a private limited company in Number 1982. The
obtained banking license on March 7, 1983 and
commenced on 16th may,
1983. The bank converted a limited liability company on September 20, 2003. it
had 70 offices (made up 64 branches and 6 cash offices) spread across
the country.
Platinum
bank plc was incorporate as a nationwide
merchant bank limited on 9th February 1989 and. On 18th
September, 1996, the bank stopped operation and was taken over by central bank
of Nigeria
During the
merging process, it was proposed that
the entire assets, liabilities and undertaken including real property and intellectual property rights of
Habib be transferred to platinum Habib and that
entire share capital of habib is
canceled. Habib was then dissolved without winding up. Platinum upon the scheme
becoming effective shall be renamed platinum habib bank plc.
The two
bank that merged on 30th November, 2005 are both public limited
liability companies. The two banks shall complimentary products and service
line, as such the proposed merger should bring about significant efficiencies
and an expanded product and customers range synergies resulting from the merger
should ensure better return to all stakeholders, the merger will return in a robust new fully complaint with CBN’s new minimum capital requirement of N25 billion.
1.8 DEFINITION
OF TERMS
ABSORPTION: Is a combination of two or more
companies into an excising company. All except one loss their identity in a
merger through absorption.
CONSOLIDATION: is a combination of two or more company
into a new company. In this form of merger all companies are legally dissolved
and a new entity is created. In a
consolidation the acquired company transfers it’s asset liabilities and shoes to
the acquiring company for cash or exchange of share.
ACQUISITION: It has been defined as an act of
acquiring effective control by one company over assets or management of another
company without any combination of
companies.
TAKE OVER: Is defined as the acquisition of
company sufficient share in other company.
AMALGAMATION: Tow or more companies or
organization coming into another one firms exceeds that of its previously
separated firm.
CAPITAL: the total value of resources that
is invested or is used to start the
business.
FOREX: The buying and selling of foreign
currency
REGULATION: An official rule made by the government or some other authority.
REGULATIONS BODIES: Bodies having a power to
control an area of business or industry
and make sure that it is operation fairly.
MERGER: Merger is the coming
together of or more companies under a single head or management.
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