Page 1 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 06
May 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 16
The Impact of Merger and Acquisition in Banking Industry and the
Economy (2005-2015)
(A Case Study of Diamond Bank of Nigeria Plc)
Ibo, Sunday Adekoya
The Federal Polytechnic,
Ile-Oluji, Ondo State, Nigeria
Oyewole, Kehinde Samuel
The Federal Polytechnic,
Ile Oluji, Ondo State, Nigeria
Akindutire, Solomon O.
The Federal Polytechnic,
Ile Oluji, Ondo State, Nigeria
Oluwadare, Ayodeji Abraham
Rufus Giwa Polytechnic,
Owo, Ondo State, Nigeria
ABSTRACT
Merger and acquisition is the only legal mode for the banking consolidation as part of the
economic reform. For banks to be active player in the economy it requires adequate capital and
this can be sourced through merger and acquisition. More often than not, since merger and
acquisition is a vital instrument for banks recapitalization and efficiency, there is need for
researchers to find out its impact both negative and positive in the banks and the economy at large.
In carrying out this research, Diamond Bank of Nigeria, Ondo branch was used as the case study
where questionnaire were distributed as the primary source of data and information were collected
through secondary source. An overview of merger and acquisition exercise between the years
2005-2015 was done in order to know those banks that have existed in Nigeria before and after the
years under review. After a thorough distribution of questionnaires and analysis of the information
gotten, a conclusion was drawn that merger and acquisition has a great impact in banking industry
& the economy at large, also an instrument of revitalizing and boosting of banks capital base so as
to guarantee its active role in the economy. Recommendations were also made to relevant stake
holders to make adequate preparation for the purpose of tackling any negative effect that might
suffice after the exercise.
INTRODUCTION
The determination of the federal
government of Nigeria to release the
economy from its devastated state led to its
effort to place it in the fare arena of unbridled
economic competitiveness as epitomized by
Page 2 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 06
May 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 17
its policy of deregulation and privatization.
The banking industry that had hitherto been
an engine room of the economy became a
major “casualty” in this regard.
The relevance of banks in the economy of any
nation cannot be overemphasized. They are
the cornerstones of the economy of a country.
The economies of all market-oriented nations
depend on the efficient operation of complex
and delicately balance systems of money and
credit. Banks are an indispensable element in
these systems. They provide the bulk of the
money supply as well as the primary means
of facilitating the flow of credit.
"Consequently, it is submitted that the
economic well-being of a nation is a function
of advancement and development of her
banking industry (Obadan, 1997).
Besides the determination of the
government to remove its hold on banks
which it held equity or statutory participation,
it descended into banking arena with a
mandate that compel all commercial banks
and Regional banks to increase their
shareholders fund to twenty five billion naira
only (N25.000,000,000.00) and ten billion
naira (N10,000,000,000.00)only respectively.
Meanwhile this development has been
effected by the CBN between 2005 and till
date and this has really strengthened the
banking industry and the economy as a
whole. This it to ensure the safety of
depositors money, viability of commercial
banks in the country, active participation in
the Nigerian economy and be competent and
competitive player In the global financial
system.
All over the world and considering the
internationalization of finance, size has
become an important ingredient for success in
the global world. In the world of finance, no
country can afford to operate in isolation, the
last few years, have witnessed the creation of
the worlds banking group through merger and
acquisition. The trend has been influenced by
factors such as prospects of cost saving due to
economy of scale as well as more efficient
allocation of resources, and risk reduction
arising from improved management.
Merger and acquisition especially in
the banking industry is a global phenomenon
in the United State of America, there has been
over seven thousand cases of banks merger
since 1980, a merger in France resulted in a
new bank with a capital base of six hundred
and eighty eight billion Us dollars, while the
merger of two banks in Germany in the same
year resulted into the second largest bank in
Germany with a capital base of Five hundred
and forty one billion dollars.
More so, Nigerian banks witness tremendous
phases of merger and acquisition between the
years 2006 to 2015 which has reduced more
than eighty-nine banks before consolidation
to nineteen banks after the consolidation
exercise. This process made Nigerian banks
Page 3 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 06
May 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 18
to be more viable and stronger as well as
experiencing a multiple effect on their deposit
base, shareholders fund, asset base and other
profitability status. Before now, we have 89
banks that are so minimal and small with
about 3,300 branches compare to this 8 banks
in South Korea with about 4,500 branches or
the one in South Africa with larger assets than
all the banks in Nigeria presently.
The fact is that the Nigerian banking
system remains very marginal relative to its
potentials and in comparison to other
countries before now, but after the
consolidation exercise between 2006 to 2015,
Nigerian banks are becoming stronger and
could compete with many other banks
globally even in the face of economic
recession. In many emerging markets,
including Argentina, Brazil and Korea,
consolidation has also become prominent, as
banks strive to become more competitive and
resilient to shocks as well as reposition their
operations to cope with the challenges of the
increasingly globalised banking system.
According to Charles Chukwuma
Soludo (2004) in his paper titled
“consolidating the Nigerian banking industry
to merit the developmental challenges of the
21st century :
” He emphasized that the Nigerian and the
world economy in the year 2025 and 2050,
what I see is a world economy with 10-20
mega banks all over the world. I see national
and cross-national merger, acquisition, taking
place in massive scales. It will not be a world
for marginal or fringe players, countries that
fail to proactively position themselves today
will wake up and continue to complain of
marginalization and this development is
ongoing.
I can see Asia consolidating, America
consolidating, consolidation is taken place in
South Africa as such that one bank in South
Africa, Amalgamated banks of South Africa
(ABSA) has asset base larger than all Nigeria
commercial banks put together. Malaysia has
gone through its first round of consolidation
whereby about 80 banks shrunk to about 12
within one year”.
Statement of the Problem
Merger and acquisition exercise has
been on the increase and common in most
part of the world today. This increase should
have been able to have positive impact in the
area to profitability, efficient delivery of
credit facilities as well as economic
revitalization as a whole. However, the
following questions are tailored to examine
the impact of merger and acquisition in
banking industry and the economy at large.
i. What is merger and acquisition?
ii. Will merger and acquisition boost
profitability?
iii. What are the benefits/importance of
merger and acquisition?
