The Effect Of Bank Consolidation On The Performance Of Banks In Nigeria
problems:
Weak corporate governance, evidence in inaccurate and non- compliance with regulatory requirement, declining ethics and gross insider abuse resulting in huge non-performing insider related credits. Over-dependence on public sector deposits and foreign exchange trading and neglect of small and medium scale private savers. (Imala; 2005:27)
2.5. BANK CONSOLIDATION THROUGH MERGER AND ACQUISITION
Consolidation is achieved through merger and acquisition. A merger is the combination of two or more separate firms into a single firm. The firm that results from the process could take any of the following identities: Acquirer target or new identity.
Acquisition on the other hand, takes place where a company takes over the controlling shareholding interest of another company. Usually, at the end of the process, there exist two separate entities or companies. The target company becomes either a division or a subsidiary of the acquiring company (Pandey, 1997:885).
While consolidation involves merger and acquisition of banks, convergence involves the consolidation of banking and other types of financial services like securities and insurance (FRBSF Economic letter, 1998).
Anecdotal evidence indicates that the commonest form of mergers and acquisitions found in the financial services industry involves domestic firms competing in the same segment (for instance, bank to bank). The second most common type of merger and acquisition transactions involves domestic firms in different segments (e.g. bank-insurance firms). Cross-border merger and acquisition are less frequents particularly those involving firms in different industry segments (Roger Ferguson Jr., 2002).
2.5.1 APPROVAL UNDER MERGER AND ACQUISITION
Before any bank can be said to consolidate through merger and acquisition in the Nigeria industry, it must first seek and obtain the approval of the following regulatory and supervisory authorities in the industry. They include the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), Nigeria Stock Exchange (NSE) and the Corporate Affairs Commission (CAC).(CBN 2004).
2.5.2 PROCEDURES FOR OBTAINING APPROVAL FOR MERGERS AND ACQUISITIONS
The Company and Allied Matter Act (CAMA 1990) and The Investments and Securities Act (ISA 1999) provide the primary legal provision for effecting Merger and Acquisitions in Nigeria. This provision vested the power to review and give approval to Securities and Exchange Commission (SEC). Before granting its approval, SEC considers the effect of the proposed transaction on the competitive environment, with a view to ensure that the transaction does not restrain competition or create a monopoly. The procedure or process for obtaining approval for mergers and acquisitions entail four (4) basic steps:
Filling a Pre-Merger/Acquisition notification
Filling a formal application for approval of the
Proposed Merger/Acquisition.
Hold a Court Order Meetings
Complying with post-approval requirements
2.6 THE ROLE OF SEC, CBN, NSE, AND CAC AS REGULATORY AUTHORITIES IN MERGERS AND ACQUISITIONS
Securities and Exchange Commission (SEC):
The Nigeria law provides that every merger, acquisition or business combination between or among companies shall be subject to the prior review and approval of the Security and Exchange Commission (SEC), (ISA 1999:599(2). Subsection 3 of the said section 99 provides that the commission shall approve any application made under that section if and if only the commission finds that “it is not likely to cause a substantial competition or trend to create a monopoly in any line of business enterprise” or “use of such shares by voting or granting of proxies”. It should be noted that both mergers and acquisitions requires SEC approval on monopoly. Worthy of note is that monopoly consideration is a pre-merger issue. There is no need to commerce the merger process if at the end or in the middle of the process SEC will refuse approval on the basis that the combination will inhibit competition. It is therefore important to seek a pre-merger approval should SEC. The application for pre-merger approval should include information on history and business of the combing companies as well as their market.
Apart from pre-merger approval on issues relating to monopoly, SEC has to approve the scheme after a court session and holding of court- sanctioned meetings. The role of SEC in this regard is quite different from the pre-merger approval. At this stages SEC will ply its traditional role of regulation to ensure compliance by the parties with disclosure and good corporate governance requirement of the law. The role