IMPACT OF BANK CONSOLIDATION ON OPERATIONAL EFFICIENCY IN FIRST BANK OF NIGERIA
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IMPACT OF BANK CONSOLIDATION ON OPERATIONAL EFFICIENCY IN FIRST BANK OF NIGERIA
INTRODUCTION TO CHAPTER ONE
1.8 Background of The Study
policy tool used to address problems in the financial sector. The economic case for internal consolidation is unequivocal. Consolidation was initially perceived as making banking more cost efficient because larger banks could eliminate excess capacity in areas such as data processing, personnel, marketing, or overlapping branch networks.
Cost efficiency could also increase if more efficient banks acquired less efficient ones. Though studies on banking efficiency revealed concerns about the level of overcapacity, they did point to significant possibilities for cost savings through mergers.
Consolidation is defined as a decrease in the number of banks and other deposit-taking institutions, accompanied by an increase in the size and concentration of consolidation entry in the sector (Bis 2001).
Better risk control through the formation of critical mass and economies of scale, advancement of marketing and product initiatives, improvements in total credit risk, and technological exploitation are driving forces in bank consolidation.
These forces have resulted in increased operating efficiencies and larger, better-capitalized institutions. Contrary to expectations, the outcomes of this policy are neither here nor there. The most difficult component of consolidation is government-induced mergers and acquisitions.
According to Farlong (1994), banking consolidation is distinct. Market-induced consolidation in the 1990s typically held out promises of scale economics, gains in operational efficiency, profitability improvement, and resource maximisation;
however, the outcomes have not completely confirmed these alleged benefits, and they have varied across jurisdictions, particularly when compared to the specific pre-consolidation expectations.
Whatever the potential, research into the consequences of bank mergers has shown no clear evidence that, on average, mergers enhance cost efficiency relative to other banks.
This is not to say that many mergers, including those of some large banks, have failed to result in considerable cost savings. It simply implies that the benefits for those institutions are often negated by issues experienced in other mergers, and that many banks have increased cost efficiency without combining.
According to a fresh perspective, bank mergers entail not only altering inputs to reduce costs, but also adjusting output (product) combinations to increase revenues.
Akakhavein et al. (1997), covering mergers in the 1980s, and Berger (1998), covering mergers in the 1990s, are two research initiatives that take this method.
According to these studies, bank mergers are connected with improved overall performance, in part because banks attain higher valued output mixtures. While these studies do not follow all of the pathways via which bank mergers affect the value of output, they do imply that one channel has been banks’ shift away from securities and towards higher yielding loans.
Given the other findings in these research, this channel is quite intriguing. They discover that amalgamated banks likely to experience a reduction in their cost of borrowed funds without the need for capital ratios.
The lower cost of financing is consistent with a reduction in the merged bank’s overall risk when compared to the merger partners evaluated separately.
This appears to occur despite the fact that a shift to loans would be expected to increase risk. One interpretation of these findings is that a merger can result in a reduction in some dimensions of risk, giving the post-merger bank more leeway to shift to a higher return, but possibly higher risk, but output mix.
Diversification could come from variances in the breadth of services offered, portfolio mix, or geographies served by the merging institutions.
Against this backdrop, the subject of this research becomes worthy of investigation.
1.9 Statement of the Problem
The current credit crisis and the transatlantic mortgage crises have called into question the efficiency of the bank consolidation programme as a cure for financial stability and monetary policy in fixing financial sector flaws for long-term development.
Many bank consolidations have occurred in several nations during the last two decades, with no end in sight to bank failures and crises, according to Olabisi (2006).
As a result, the study question is whether bank consolidation has any effect on the operational efficiency of First Plc Kaduna. The topic matter is deemed a concern because of this.
1.10 Objectives of the Research
i. Determine the impact of bank consolidation on the operational efficiency of the first bank.
ii. Evaluate the performance of the first bank in the post-consolidation period.
iii. To identify the issues affecting the first bank in the post-consolidation phase.
iv. To offer a workable remedy to the first bank’s recognised problem in the post-consolidation era.
1.11 Importance of the Research
The study will be advantageous to commercial banks in Nigeria, particularly when they use the research findings to overcome post-consolidation difficulties that are working against them.
The study will improve existing knowledge of bank consolidation issues that are working against their institutions.
The study will improve existing knowledge of bank consolidation and serve as a platform for future research.
1.12 Research Questions
i. What effect does bank consolidation have on the operational efficiency of the first bank?
ii. How is the first bank performing in the post-consolidation period?
iii. What are the issues confronting the first bank in the post-consolidation period?
iv. What are the possible solutions to these issues?
1.13 Scope of the Research
The research will look into the influence of the first as well as its performance in the post-consolidation stage.
The investigation will also look at the issues that were working against the first bank throughout the initial consolidation period. Primary data collection will be limited to the first bank in Kaduna.
1.14 Definitions of Terms
Bank:-A place of business that receives, loans, issues, swaps, and manages money: extend credit and provide ways to transmit money and credit swiftly from one location to another.
Consolidation is defined as the reduction of the number of banks and other deposit-taking institutions while simultaneously increasing the size and concentration of the sector’s consolidation entities (Bis, 2001:2).
Economy:-The framework of a country’s, region’s, or system’s economic existence. “Convergence” is a book. According to him, consolidation refers to bank mergers and acquisitions,
whereas convergence refers to the combination of banking and other types of financial services, such as securities and insurance, through acquisitions or other ways. He concluded that the influence of consolidation on bank structure is evident, but the impact on bank performance is more difficult to discern.
Most developing or emerging economies have adopted the government policy-promoted bank consolidation rather than the market method, and the time lag of the bank consolidation differs by nation. Banking sector changes are part of monetary policy instruments for effective monetary systems,
with important modifications in monetary policy transmission mechanisms economies in both developed and developing countries during the last decade.
To compete, attract international investment, and enhance capital market growth, the banking sector in emerging economies has undergone significant changes.
Bank consolidation has as many motives and strategies as there are banking countries. When opportunities in the operational environment for banks become available only to market-dated institutions, whether inside the confines of a country, an economic zone, or a geographical area.
There is a risk of market-induced consolidation. Many occurrences of bank consolidation have been recorded in the contemporary history of banking, and ready examples include the European and American bank mergers and acquisitions of the 1980s and 1990s.
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