ABSTRACT

The impact of banking consolidation on the insurance industry’s activities in Nigeria (A case study of AILCO Plc) The Nigeria banking sector’s consolidation experience has been lauded as a result of the monumental banking system reform that began on July 6, 2004 at the Central Bank of Nigeria’s headquarters, when the newly appointed governor of the Central Bank shared his preliminary concerns about the reform of the Nigeria banking sector (Ogowewo and Uche 2006). The study’s goals are to determine the projected impact of bank consolidation on the insurance business and to assess the impact of bank consolidation on the Nigerian economy’s rural sector.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The study’s significance will disclose the reasons for the impact of bank consolidation on the growth and development of the insurance industry in the economy, as well as serve as data for future academics conducting related research investigations. In order to obtain information for the study, the researcher used both primary and secondary data. Finally, due to the recapitalization process, which required the life assurance industry to pay a minimum capital based of N25 billion, while general insurance was N3 billion, bank consolidation has had a substantial impact on the insurance market in Nigeria. As a result of the recapitalization effort, Nigeria’s insurance industry has shrunk to 49 companies. The Nigerian banking sector’s consolidation experience has been lauded as a result of the monumental banking system reform that began on July 6, 2004 at the 23rd meeting of the Nigerian bankers committee held at the Central Bank of Nigeria, where he shared his preliminary thoughts on the Nigerian banking sector’s reform (Ogowewo and Uche, 2006). According to Soludo (2005), the reform’s stated goals were to “consolidate, deepen, and strengthen financial sector stability and competitiveness.” To sum up, a 13-point financial reform program was unveiled on July 6, 2004, with data ending on December 31, 2005, just 18 months later. In July 2004, the Central Bank of Nigeria (CBN) raised the minimum capital requirement for all universal banks to N25 billion. This was an attempt to strategically position the country’s banking system in the regional international convex, ensuring soundness, stability, and efficiency. Mergers and acquisitions resulted as a result of this. Within the banking business, and as a result, the entire system is being restructured. The consolidation operation had several goals, including grooming and transforming the bank into an entity that investors and depositors can trust, playing development roles in the economy, eliminating corruption, and increasing transparency. It is also envisaged that the reform will reduce the cost structure of banks over time, resulting in improved shareholder returns.

Both financial institutions and regulatory bodies will undoubtedly face issues as a result of the consolidation banking sector. This is because, as a result of consolidation, the banking industry becomes more concentrated, and larger institutions are likewise more complicated and deal in more sophisticated financial goods. As a result, they provide higher hurdles in the event of a failure.

The need for a strong, reliable, and viable banking system is understated by the fact that the banking industry is one of the few sectors in which the shareholders fund is only a small portion of the liabilities surprising that the banking industry is one of the few sectors in which the shareholders fund is only a small portion of the liabilities. The post-consolidation age in the sector has undoubtedly seen the rise of Nigeria’s middle class and tremendous expansion in the retail/consumer banking sector. The country’s consolidation effort is also aimed at addressing the need for customer-derived banking. It will also alter the banking landscape in the country. They’re being put through their paces and getting ready to compete with the world’s financial institutions. It would instill confidence in mergers by directing banks’ attention to electronic banking and the elimination of counter banking. The goal of the banking sector’s consolidation in Nigeria is to enable banks to compete worldwide and embrace innovation in their intermediation functions.

STATEMENT OF PROBLEM

The Nigerian banking system has changed dramatically over the years, both in terms of the number of institutions and the volume of operations, owing largely to the financial sector’s deregulation in accordance with global trends. With the introduction of the banking industry’s consolidation exercise, it was necessary for other institutions, such as the insurance industry, to address the problems that the industry is presently facing, such as a low capital base, a lack of confidence among the insured, and so on. This study was also conducted to see how the banking industry’s consolidation may effect the expansion of the insurance market in Nigeria.

OBJECTIVES OF THE STUDY

The following are some of the study’s goals:

To assess the role of bank consolidation in the Nigerian economy’s real sector.

 

The goal of this study is to look into the purpose of banking consolidation.

 

To determine the impact of banking consolidation on the insurance industry’s economic development.

 

To determine the projected impact of bank consolidation on the insurance business.

RESEARCH QUESTIONS

Do you believe that the banking industry will change as a result of the consolidation exercise?

Is bank consolidation affecting the insurance industry in Nigeria?

Do you believe that bank consolidation will have a favorable impact on the insurance industry?

SIGNIFICANCE OF THE STUDY

This study’s importance will highlight the reason for and impact of bank consolidation on the growth and development of the insurance industry in the economy.

It will assist individuals in understanding the consolidation effort and its impact on operations.

It will be used as a source of information for researchers who will conduct related research investigations in the future.

Individuals will have more faith in the banking organization as a result of this.

SCOPE AND LIMITATION OF THE STUDY

Because the researchers are unable to analyze all aspects of the insurance and banking industries, they have picked United Bank for Africa (UBA) Plc and Niger Insurance Plc in Enugu metropolitan.

DEFINITION OF TERMS

1. Consolidation: The CBN uses this phrase to indicate the merging of several banks within a single bank in order to meet the CNB’s capitalization to minimum base criteria.

2. Merger: A merger is the combination of two or more entities into one by a purchase, acquisition, or interest pooling.

3. Acquisition: This is the act of one company gaining effective control over the assets or management of another company without the need for a merger.

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