The Effects Of Bank Consolidation On The Performance Of The Migerian Capital Market

The Effects Of Bank Consolidation On The Performance Of The Migerian Capital Market

Chapter One

Preface

Background To The Study

The banking system plays a abecedarian part in the growth and development of any frugality. In fact, the health of the banking system of a nation determines the well- being of the frugality( Osaze 2000). The banking sector in Nigeria had experienced a number of major reforms over the last two decades brought about by the restructuring and liberalization of the fiscal sector as well as technological advancements. Before 1987, the Nigerian financial authorities confined entry, controlled branch expansion and set both deposit and lending rates. This institutional frame led to a situation of nearly little or no competition in the sector, with further of the conditioning concentrated in the four largest banks.

In 1990s, a lot of structural changes were observed in the sector. There was a significant check of banks, preemption of operation and control by the Central Bank of Nigeria( CBN) and the Nigerian Deposit Insurance Corporation( NDIC). The obligatory capital position was increased to N 500,000.00, while the statutory minimum threat- weighted capital rate remained at 8 on average, the number of banks in Nigeria shrank by roughly 22 between 1997 and 1999( Asogwa, 2004).

The relinquishment of universal banking in Nigeria brought about the need by the CBN to strengthen the nonsupervisory and administrative frame. The demand of capital base was again raised to N2 billion in 2002 while the threat- weighted capital rate was increased to10. In 2004, the CBN blazoned a new 13 point reform docket with the intent to promote soundness, stability and effectiveness of the Nigerian banking sector and to enhance its competitiveness in the African indigenous and global fiscal system. One of the 13- point docket was to increase the minimal capital base to N25 billion roughly 18 months( December, 2005) after the advertisement with the statutory minimum threat- weighted capital rate maintaining at 10. This brought about the need for some banks to terminate their actuality, while some find themselves into combinations, and accessions and the remaining banks went to the capital request to raise new capital.

When the new reform was blazoned, out of the 89 banks in operation in the banking sector, about 5- 10 banks ’ capital base was formerly N25billion; 11- 30 banks ’ capital base was within N10 to N20 billion; the remaining 50- 60 banks were relatively below N10 billion( Zhao and Murinde, 2009). The attempt to meet the minimal capital base convinced the junction and accession in the assiduity. Further, banks raised capital from original as well as foreign direct investment. This led to the increase in the assiduity’s capitalization as a chance of stock request capitalization and request’s liquidity during its 2005- 2006 fiscal time. At the end of the18 months given by the CBN, only 25 out of 89 banks were standing with 21 private intimately quoted banks, 4 foreign banks but no government- possessed bank.

Since commencement, the reforms in the banking assiduity have been told by the need for sounder banking assiduity, globalization of operations, technological invention and the relinquishment of administrative and prudential conditions that conform to transnational norms and the need to make Nigerian banks Basel Accord I and II biddable.

The reforms in the Nigerian banking sector were necessary due to reasons similar as weak capital base of the banks, weak commercial governance, gross bigwig abuse, sharp practices, overdependence on public sector deposits, bankruptcy and internally concentrated competition. The reform brought about changes in size, structure and functional characteristics of the Nigerian banking system( Ibid). ultimately, 24 larger and better- subsidized banks are presently in operation in Nigeria.

The places and performances of the Nigeria capital request ahead and after connection in channelizing investment openings is commodity that can not be ignored. still the question that’s yet to be scientifically answered is which period did the Nigeria capital request perform better? The ideal of this study is to assess the performance of Nigeria capital request ahead and after connection.

Statement Of The Problem

Banks made connection( junction and accession) as an indispensable means of recapitalizing. The rearmost reform impelled all marketable banks( deposit- taking institutions) to raise their capital base from N2 billion to N25 billion on or before 31st December, 2005 which transferred some of the banks on their toes considering connection( junction and accession) as the stylish option From the Nigerian Stock Fact Book during the times before connection, there were no enhancement in all- share indicator, volume, values of shares traded and banking sector capitalization compared to the connection period and later. Has this enhancement being brought about by the connection exercise of 2005? What was the sole factor that was responsible for this unforeseen enhancement?

What effect did banking sector connection have on the Stock request performance in terms of perfecting the performance indicators of the stock request? What has been the trend of all- share indicator before and after banking sector connection? To what extent has connection exercise of 2005 impacted the stock trading conditioning in the stock request? Looking at the Fact Books of NSE before, during and after connection, had the banking sector connection brought smash or doom to the capital request in Nigeria?

Although the connection program sounded seductive at the onset, experts have argued that the exercise is policy- convinced rather than request- driven and as similar may encounter difficulties in realizing the anticipated pretensions.

According to Somoye( 2008), the Government policy- promoted bank connection rather than request medium has been the process espoused by utmost developing or arising husbandry and the time pause of the bank connection varies from nation to nation and as similar there are for case, high degree of reservations among the antagonists that the connection policy lacks critical consideration of the plazas on ground, and that the authorities may have espoused it to disempower certain group of bank possessors who were lately linked to colorful forms of profitable crimes and fiscal familiarities( Ezeoha 2005). A great concern for the connection exercise, despite its good intents, has been the position of contestation it generated since the CBN blazoned it in July 2004.

In the reflections of Akpan( 2009) maximizing returns and optimizing profitability came the challenge for banks incontinently after the connection exercise where banks were needed to significantly increase their position of returns and at the same time manage costs, to realize this, banks will have to offer innovative products and services to the business including new ways of delivering them. As with the general profitable reforms that are coincidently taking place in the country, still, utmost of the arguments centered more on the structure and the perpetration medium, and not on the advisability of the exercise( Ezeoha 2005).

It’s as a result of the afore- mentioned that this study sets out to examine the performances of the Nigeria Capital request ahead and after the connection exercise of 2004, to see if the connection of banks brought about significant enhancement of the capital request when compared to the performance of the request before connection.

Defense For The Study

The Evaluation of the performances of Nigerian capital request ahead and after connection has been an area of interest to numerous experimenters in recent times and previous. Several studies conducted on the evaluation of the performances of the Capital request appear not to have adequately addressed all the major issues of concern in this area. For case, Abdulrahaman( 2013) made an evaluation of the performances of Nigerian capital request ahead and after banking sector connection exercise between the period from 2001- 2010. The study examined the significant difference in the mean of the performances of the Capital request ahead and after connection. still, the study failed to estimate the difference in the position of original investment and also the All- share indicator on the exchange ahead and after connection in which the oneness of this study taradiddle .

To the stylish of the experimenter’s knowledge and the literature available, it appears that no study has been carried out which evaluates the capital request performances ahead and after connection with particular respect to the position of original investment. This is what gives rise to the study, and hence the gap the experimenter intends to fill.

Exploration Objects

The general ideal of this study is to examine how poorly or how well the Capital request fared before the connection of banks in 2005, in comparison to thepost-consolidation performance.

The specific objects are to

i.) Examine the value and volume of request deals ahead and after banks’ connection.

ii.) estimate the All- share indicator of the stock exchange ahead and after connection of banks.

iii.) Determinethe position of original investments in the request ahead and after banks’ connection.

Exploration Questions

i.) To what extent has the banks’ connection bettered the value and volume of deals in the capital request in comparison to the value and volume of deals before connection?

ii.) Has the All- share indicators of the stock exchange significantly bettered after connection relative topre-consolidation?

iii.) Is there a significant enhancement in the position of original investments in the capital request after connection when compared to the position of original investments before connection?

Suppositions Of The Study

The suppositions of the study are

Ho1 There’s no significant relationship between the value and volume of request deals in the capital request ahead and after banks’ connection.

Ho2 Banks’ connection in Nigeria has no significant relationship with All- share indicator of the Nigerian Stock Exchange ahead and after connection.

Ho3 There’s no significant enhancement on the position of original investments before and after banks’ connection.

Compass Of The Study

The study considers the performance pointers of the capital request which covers the time period between 2003- 2008. The study compares the performance of Nigeria capital request for the period of five times which are divided into two different ages, pre connection period( 2003 – 2005) and post connection period( 2006-2008). The performance pointers estimated include The value of request deals, volume of stock traded and the All- share indicator; and also primary information on the position of original investments on the exchange.

Description Of Terms

Bank

According to wordbook, a bank is an institution for keeping, advancing and exchange of, and so on and so forth ofmoney.Generally speaking, bank is an institution that accepts deposits from guests and therefore advances loans to the guests. The major difference between banks and other fiscal institutions that accept deposits is that banks produce credit while other institutions can not.

Capital Market

The Capital request is the member of the fiscal request which facilitates the rallying and allocation of medium and long term finances through the allocation and trading of fiscal instruments. similar instruments, else known as securities include stocks and company shares; marketable and artificial loan stocks and debentures; state government bonds and stocks; civil government development stock bonds.

connection

connection is reduction in the number of banks and other institutions that take deposits with a contemporaneous increase in size and attention of consolidated realities in the sector.

Combinations and Acquisition

A junction is durability of two or further companies into one single company. On the other hand, accession takes place where a company takes over the controlling shareholding interest of another company.

Association Of The Study

The study will be divided into five chapters. Chapter one presents the preface of the study and the overview of the exploration work. Chapter two reviews the being literature on the Nigerian banking sector, development and transitions at different points in time leading up to the advertisement of the new minimal capital demand of banks by the CBN in 2004 performing into connection; and also the history and elaboration of the Nigerian capital request, abstract frame and theoretical frame. Chapter Three examines the methodology espoused for this study in terms of data collection and instruments. Chapter four presents the data analysis and interpretation of results. Chapter Five discusses the summary, conclusion and recommendations of the study.