The Effect Of Bank Consolidation On The Performance Of Banks In Nigeria

of SEC is not to be a participant but to create the enabling environment for parties to play in affair market situation.

Central Bank of Nigeria (CBN) Approval:

Banks and other financial institutions Act (Bofid) 1991 and the CBN Act of 1991, the CBN has enormous powers to regulate banks including approval of consolidation of banks and changes in the structure and management of any bank. It follows that in view of the world powers of the CBN, it is advisable that pre-merger approval of CBN be obtained prior to commencement of the process consolidation. The pre-merger approval for merger and acquisition would be required to undergo three stages of approval namely, pre-merger consent from the CBN, approval – in- principle and final approval. Also, it is imperative that CBN approval be sought and obtained to the scheme document, shareholders agreement, new memorandum and articles of association implementing shareholders agreements, if any.

During implementation process, every structural management action would be subject to CBN approval. These would include reorganization, staff rationalization, name approval, branch rationalization, head office etc.

Nigeria Stock Exchange (NSE) Approval:

The approval of the Nigeria stock exchange is necessary if the merged company is to be a public limited liability company and desires listing on the exchange or some of the merging companies are listed on the exchange. During the merger period the NSE is like place of listed parties to the merger or technical suspension to prevent unfair trading and protect those companies.

CORPORATE AFFAIRS COMMISSION (CAC) APPROVAL:

Essentially from the legal point of view the CAC has merely a ministerial role to play in mergers and acquisitions.

It is the custodian of company documents; therefore most of the processes end up with the CAC for proper custody. This is done through statutory returns. Certificates of incorporation will eventually be returned and a new one issued for the merged company. The share capital may have to be increased substantially. Also, returns of allotment will have to be filed. Some of these processes involve payment of substantial sums in stamp duties and filling fees. It is therefore imperative that these costs be anticipated.

Although the CAC has a purely ministerial role in regulation of mergers and acquisitions, improvement in its technology and some service delivery means that, it is more able to track defaulting companies and this can slow down the process for companies involved in the merger process whose returns at CAC is not up to date. Defaulting companies may have to pay substantial penalties.

2.7    CHALLENGES OF BANK CONSOLIDATION

The challenges identified in this research work cut across the banks, their shareholders, bank employees and other stakeholders in the banking industry.

It is an established fact that the route to improving efficiency in any industry is to foster competition among the operators. This is evident in two important growth sectors of the Nigeria economy- aviation and telecommunications over the last one decade (Adedipe 2005:37). A major challenge of bank consolidation is how to foster competition with fewer mega banks.

Certainly, fewer cannot be more competitive. There is however, the other side to the argument, which considers the number and spread of bank branches. The fewer banks are likely to be pressured to expand further, seeking business opportunities through aggressive branding to hitherto unexplored territories. (Moon, 1998).

There is ample evidence that this is the direction that the emerging banks in Nigeria are likely to follow, going by the indications in their capital raising information memorandum. International evidence in bank consolidation also confirms this except that it is more in the context of cross boarder acquisitions (Hughes, Lang, Master and Moon, 1998).

One of the supposed benefits of consolidation (Bigger Banks) is indeed and efficiency challenge. The argument has been that bigger banks might not necessarily be filter or more efficient, since they have no incentive to improve efficiency within the limited competitive field. Observers of Nigerian banking have noted that the big banks (perhaps because of the increase in the number of customers) have slipped back to their erstwhile habits before the advent of the new generation banks. Available, empirical evidences from Hughes et al (1998).

Another major challenge of consolidation is capacity building for risk management for both the regulators and operators. Both constituencies of the bank system need to enhance their risk management skills and indeed acquire new ones, covering the three plant of risk recognition, evaluation and monitoring (Adepide, 2005:41).

2.8     THE IMPLICATION OF CONSOLIDATION