The Effect of Bank Capitalisation on the Performance of Banks in Nigeria.

5696 Words Feb 2nd, 2011 23 Pages
The Effect Of Bank Consolidation On The Performance Of Banks In Nigeria
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Top of Form
Bottom of FormCHAPTER ONE
1.0 BACKGROUND OF THE STUDY
The recapitalization and consolidation exercise in the banking industry by the former Central Bank of Nigeria Governor, Professor Charles Soludo has necessitated the need for different organization to engage in corporate Consolidation (mergers and acquisition). The concept of recapitalization refers to the current trend of compelling all commercial banks to raise their capital base from 2billion to 25billion Naira by the Central Bank of Nigeria on or before 31st December 2005. This has sent some of these banks on the move to consider
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Globally, such business combinations have involved various sizes of companies as well as assets and have cut across economic sectors. While many business combinations have been well received by parties involved, other have done so with stiff resistance often resulting in long battles to prevent the combinations.
With the latest CBN regulation and the systematic withdrawal of Federal funds from the banks, a lot of banks are on the brink of extinction. As a result of this a lot of banks are now either going public or trying to position themselves as banks of choice for possible merger or acquisition by other banks. This new development would also impact on employment, as most top management would be affected and other young staff would be thrown into the labour market in the bid to have the required number of directors by the regulatory authorities and on the economy at large.
In Nigeria today, a number of banks wanting to merge may run into difficulties, because most Nigeria banks are not quoted on the stock exchange and the assets of some are really bad. The effect of the merger is that merging banks in the country, under the current dispensation may lose their licenses and be issued new ones to reflect the new consolidated outfit. As we go on in the subsequent chapters, further critical look shall be taken on the effect that this development is likely to or will have on the Nigeria banking industry and the economy at large.
1.1
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