The Impact Of Strengthening And Consolidation The Nigerian Banking System

A business combination takes place when two or more business organization come together to form a single economic unit. Business combinations; could take the form of merger and acquisition where two or more previously autonomous concerns come together under common control, there is a formation of a new company, which acquires the (assets and possible the liabilities) of  two or existing  business. 

Merger and acquisition are the fastest ways for a business to dramatically change its position in the market place (i.e.  acquisition of a wide market area). Either transaction can alter the fundamental dynamics of an  organization almost  over night by changing the scope or breath of products services the business  renders as well as the model under which it competes. 

When the board of directors of two companies agrees to come together  (amalgamate) in the interest of both mergers  is the   right term. On the other hand, a company wanting to gain control of the another business whose board not recommend the change is said to be attempting to take over the company. Acquisition may be defined as an act of acquiring effective control by one company over an asset management of another company without any combination of companies when management of acquiring company target company  mutually and willingly agree for the takeover, its called acquisition of friendly takeover embrace the practice of merger and acquisition in the years to come. 

Prior to 2004, the banking industry recorded steady distress. Managers of bank engaged in illegal banking operation, to stay afloat. Depositors lost confidence in the banking industry. These and some other reasons prepared the way for the consolidation in the  industry. On 6th July 2004, the governor of Central Bank  of Nigeria (CBN) instructed banks to shore  capital base up to N25 billion on or before 3rd December 2005. the guidelines and incentives to facilitate  consolidation in the industry and assist  banks in meeting the deadline was approved by the Board of the  CBN (NES, 2005:5) the main intention of the consolidation was to pressure banks to merge or encourage takeovers, so that the emerging  bank will be big and storage.

Prior to this policy, most of the banks have eroded their equity base, their credit capacity  have diminished and on a gradual collapse and are no longer in the clearing house. As a result of this, it was concluded  that merger and acquisition was an option to stop the imminent collapse of the banking system.  Therefore, the  objectives are to correct the instability in the area of  inefficiency of management of banks, liquidity structure, and  erosion of capital base through unprofitable investments credit facilities, corporate governance and monetary policy  disequilibrium. 

From the foregoing, it is apparent that the reforms in the Nigerian handled and supplemented with necessary policies would bring about industrial growth and create enabling investment environment that would engender economic development. This would be achieved by the availability of management capacity, in crease sales, operating and investment synergies banks can now go into profitable and creative risk venture hitherto to difficult because of inadequate capital base. 

The code of corporate governance for banks that been released by CBN a year ago considered the broad based ownership structure of banks today, good corporate governance instituted will make management to be more accountable to the banking sectors will continue to soar. A closer look at the code of corporate governance prescribed by the CBN for the banks includes  the following among others: