EFFECT OF BANK CONSOLIDATION ON KEYSTAKEHOLDERS OF COMMERCIAL BANKS IN NIGERIA’S NIGER DELTA REGION BYDICKSON, RACHEALPG/Ph.D/04/38060DEPARTMENT OF MANAGEMENT, FACULTY OF BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA, ENUGU CAMPUS

EFFECT OF BANK CONSOLIDATION ON KEY
STAKEHOLDERS OF COMMERCIAL BANKS IN
NIGERIA’S NIGER DELTA REGION

BY

DICKSON, RACHEAL
PG/Ph.D/04/38060

DEPARTMENT OF MANAGEMENT,
FACULTY OF BUSINESS ADMINISTRATION,
UNIVERSITY OF NIGERIA,
ENUGU CAMPUS.

2013

1


EFFECT OF BANK CONSOLIDATION ON KEY
STAKEHOLDERS OF COMMERCIAL BANKS IN NIGERIA’S
NIGER DELTA REGION

BY

DICKSON, RACHEAL
PG/Ph.D/04/38060

A THESIS SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD
OF Ph.D IN MANAGEMENT,

DEPARTMENT OF MANAGEMENT,
FACULTY OF BUSINESS ADMINISTRATION,
UNIVERSITY OF NIGERIA,
ENUGU CAMPUS.

SUPERVISOR: Prof. U.J.F EWURUM

2013
2


DECLARATION
I, Dickson, Racheal, a postgraduate student in the Department of Management with Registration
Number PG/Ph.D/04/38060 do hereby declare that the work incorporated in this thesis is original
and has not been submitted in part or in full for any other Diploma or Degree of this University
or any other Institution of higher learning.

......................................................................
DICKSON, RACHEAL
PG/Ph.D/04/38060

3


APPROVAL
This thesis has been approved for the Department of Management,
Faculty of Business Administration, University of Nigeria. Enugu Campus, by

............................................................
Prof. U.J.F EWURUM

SUPERVISOR

…………………………….
DATE

...............................................................
Dr. V.A ONODUGO
HEAD OF DEPARTMENT

……………………………..
DATE

4


DEDICATION
This project is dedicated to my Husband, Hon. Henry Seriake Dickson, the Executive Governor
of Bayelsa State, who sponsored my programme, for his love, care and understanding and
unrelenting efforts at making sure the Ph.D programme was a success.

5


ACKNOWLEDGEMENTS
I wish to acknowledge firstly the Almighty God for His favour and mercy in seeing me through
this study; praise be His name. I also want to thank my Supervisor Prof UJF Ewurum, former
Dean, Faculty of Business Administration, University of Nigeria, Enugu Campus for his untiring
effort in going through this study.
I also wish to express my profound gratitude to Dr. V.A. Onodugo, Ezigbo, Head, Department of
Management and to all the lecturers in the Department of Management, notably Dr O. Ugbam,

Dr. Charity, Dr E.K.Agbaeze, Dr Ann Ogbo, Dr B.I. Chukwu and C.O. Chukwu, for their
immense contribution towards the successful completion of my PhD programme. Other staff of
the Department and Faculty, particularly the current Dean, Prof (Mrs) Ugwuonah, also deserve
special mention for facilitating the completion of the programme. May the good Lord bless you
all and reward you abundantly for your encouragement and moral support.
I also appreciate the contributions of the Board and staff of School of Postgraduate Studies and
the university community in general who laboured in various ways to see me through this
doctoral programme. God bless you all.
My profound gratitude goes to the Library of University of Nigeria, ICT, and Afrihub all of
Enugu campus of UNN for their assistance in my secondary data collection as well as my
computer typists for their efforts in the preparation of drafts and production of the thesis.

Racheal Dickson

6


TABLE OF CONTENTS
Approval. .

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ii

Certification. .

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iii

Dedication.

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iv

Acknowledgements. .

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v

Abstract.

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vi

List of Tables. .

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x

CHAPTER ONE: INTRODUCTION
1.1

Background of the Study.

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1

1.2

Statement of the Problem.

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6

1.3

Objectives of the Study.

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1.4

Research Questions. .

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1.5

Research Hypotheses. .

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1.6

Significance of the Study.

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9

1.7

Scope of the Study.

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10

1.8

Operational Definitions of Terms.

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10

1.9

History of Nigerian Banking Industry and the Nigeria Niger Delta Region.

1.10

Profile of the Nigerian Niger Delta Region .

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15

References.

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17

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11

CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1

Introduction. .

2.2

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20

Conceptual Framework.

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20

2.3

Theoretical Framework.

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23

2.4

Empirical Review: Prior Researches on Bank Consolidation.

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27

2.4.1

Bank Consolidation and Human Resource Issues.

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27

2.4.2

The Value Effects of Bank Consolidation.

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28

2.4.3

Bank Consolidation and Efficiency of Financial Intermediation.

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40

2.4.4

Bank Consolidation and Organisational Performance.

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48

7

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2.4.5

Bank Consolidation and Managerial Role and Commitment.

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58

2.4.6

Bank Consolidation and Commercial Borrower Welfare.

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64

2.5

Summary of the Review of the Related Literature. .

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68

References.

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70

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CHAPTER THREE: RESEARCH METHODOLOGY
3.1

Introduction

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83

3.2

Research Design.

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83

3.3

Nature and Sources of Data. .

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83

3.4

Population of the Study.

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83

3.5

Pilot Survey. .

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84

3.6

Sample Size Determination. .

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85

3.7

Sampling Procedure . .

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86

3.8

Research Instrument .

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87

3.9

Validity of the Instrument.

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88

3.10

The Reliability of the Instrument.

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88

3.11

Techniques for Data Analysis.

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90

References

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91

CHAPTER FOUR

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PRESENTATION AND ANALYSIS OF DATA

4.1

Introduction.. .

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92

4.2

Presentation of Data. .

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92

4.3

Test of Hypotheses.

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135

4.4

Discussion of Results. .

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143

References .

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147

CHAPTER FIVE

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SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS

5.1

Summary of Findings..

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148

5.2

Conclusion.

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149

5.3

Recommendations.

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149

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5.4

Contribution to Knowledge. .

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151

5.5

Suggestion for Further Studies.

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151

Bibliography. .

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152

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170

Appendices

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LIST OF TABLES
Table 4.1

Response Rates of Respondents in the Niger Delta Region .

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92

Table 4.2:

Do you agree that Bank Consolidation have had an effect on
the Role Managers in the Bank?
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.
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.

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93

With Bank Consolidation, Bank Managers now perform
their Managerial Functions of Planning, Organising, Directing
and Control very well?
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94

With Bank Consolidation, Bank Managers Discharge their
Responsibility Creditably? .
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96

With Bank Consolidation, CEOs now see great Reputational
Benefits? .
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97

Managers in the Post-Consolidation Era of Banks are now
highly committed to their jobs?
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98

With Bank Consolidation, Managers are no longer committed
to their functions? . .
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.
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.

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100

Table 4.8

Consolidated Response to Objective one

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101

Table 4.9:

Consolidation Policy of the Central Bank has an effect on the
General Performance of your Bank? ..
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.

.

103

Banks in this Post-Consolidation Era are now doing well in
Terms of Profitability and Services to Customers? . .
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104

With bank Consolidation, Profit has Increased due to the Increase
in Capital Necessitated by the Consolidation Policy of the Central
Bank of Nigeria? .
.
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.
.
.

106

Table 4.12:

Bank Consolidation has Improved the Operating Efficiency of Banks?

107

Table 4.13:

Operating Costs are well Managed as a Result of the Bank Consolidation? 108

Table 4.14

Consolidated Response for Objective Two

Table 4.15:

Table 4.3:

Table 4.4:
Table 4.5:
Table 4.6:
Table 4.7:

Table 4.10:
Table 4.11:

Table 4.16:

.

.

109

To what extent do you agree that the Consolidation Policy of the
Central Bank has positively influenced the Rate of Job Creation
of banks in the region?
.
.
.
.
.

.

111

With bank Consolidation, Employees are no Longer comfortable
with their jobs; they always fear losing their jobs? . .
.

.

113

10

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.


Table 4.17:

Bank Consolidation has led to Job Losses at the Executive
General Management, Senior and Junior Staff Cadre? .
.

.

114

With Consolidation, Employees now Resort to Active and
Passive Resistance to protest and resist Job Losses? .
.

.

115

Table 4.19:

Consolidation Response for Objective Three..

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117

Table 4.20:

The bank Consolidation policy has Enhanced Employees’
Job Satisfaction? .
.
.
.
.
.
.

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119

With Bank Consolidation, Salaries are paid regularly and
Worker’s needs are well attended to? .
.
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.

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120

With Bank Consolidation, Workers derive greater pleasure in
Performing their Roles? .

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.
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.

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121

Table 4.23:

Consolidated Response for Objective Four . .

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122

Table 4.24:

Bank Consolidation has Greatly improved the Value of
Shareholder’s Wealth? .
.
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.
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.

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124

Bank Consolidation has led to Higher Returns to
Shareholders Investment? . .
.
.

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.

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125

Table 4.26:

Consolidated Response for Objective Five . .

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.

127

Table 4.27:

Bank Consolidation has Greatly Improved Commercial
Borrowers Welfare? . .
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.
.
.

.

.

129

Commercial Borrowers are Dissatisfied with the PostConsolidation Lending Practices? . .
.
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.

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130

Bank Consolidation has led to a Decline in Customers’
Welfare? .
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.
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.
.
.

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131

Table 4.30:

Bank Consolidation has Enhanced Customers’ Welfare? . .

.

132

Table 4.31:

Consolidated Response for Objective Six .

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133

Table 4.32

Consolidated Response to Objective One.

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136

Table 4.33:

SPSS Chi-Square Tests Result for Hypothesis One. .

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136

Table 4.34

Consolidated Response for Objective Two

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137

Table 4.35

SPSS Chi-Square Tests Results for Hypothesis Two. .

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137

Table 4.36:

Consolidation Response for Objective Three .

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.

Table 4.18:

Table 4.21:
Table 4.22:

Table 4.25:

Table 4.28:
Table 4.29:

11

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138


Table 4.37:

SPSS Chi-Square Tests Results for Hypothesis Three.

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.

138

Table 4.38:

Consolidated Response for Objective Four . .

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139

Table 4.39:

SPSS Chi-Square Tests Results for Hypothesis Four..

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140

Table 4.40:

Consolidated Response for Objective Five . .

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141

Table 4.41:

SPSS Chi-Square Tests Results for Hypothesis Five .

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141

Table 4.42:

Consolidated Response for Objective Six .

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142

Table 4.43

SPSS Chi-Square Tests Results for Hypothesis Six. .

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.

142

12

.


ABSTRACT
This study examined the effect of bank consolidation on managerial roles and commitments,
performance, employment of human resources, worker job satisfaction, shareholders wealth value
creations and commercial borrower welfare in commercial banks in the Nigeria’s Niger Delta region. The
study adopted the survey research design and oral interview. The respondents were drawn from managers,
non-managers, commercial borrowers and shareholders of commercial banks in Nigeria’s Niger Delta
region. A sample size of 730 respondents was used for the study. Data collection was through
questionnaire structured in five point Likert-scale and oral interview. The reliability test was by Cronbach
alpha correlation at 0.97. Six hypotheses were stated and analysed using the Chi-square ( x 2 ) statistic. The
results from the study reveal that bank consolidation had significant positive effect on managerial roles
and commitment of commercial banks in Nigeria’s Niger Delta region. Bank consolidation had significant
positive effect on performance of Nigerian commercial banks in the region. Bank consolidation had
significant negative effect on employment of human resources in Nigerian commercial banks in the
region. Bank consolidation had significant negative effect on worker job satisfaction in commercial banks
in the region. Bank consolidation had significant positive effect on shareholder wealth value creation in
commercial banks in the region. Bank consolidation had significant negative effect on commercial
borrowers’ welfare in commercial banks in the region. The conclusion of the study is that, though bank
consolidation exercise had significant positive effect on managerial role, commitment and performance as
well as shareholders’ wealth value creation in commercial banks in the Niger Delta region, it had
significant negative effect on human resources employments, workers job satisfaction and commercial
borrowers’ welfare. The study therefore recommends that for the region’s industrial base to grow,
government should implement policies that will enhance employment creation. Also, policy framework
that will enhance growth of consolidated banks in Nigeria should be pursued.

13

CHAPTER ONE
INTRODUCTION
1.1

Background of the Study

The banking system consolidation is a global phenomenon, which started in the advanced
economies. Two notable examples of countries experiencing a wave of mergers and
consolidation in the banking industry in recent times are the United States of America (USA) and
Japan (Hall, 1999:204-216). According to Kwan (2004:2), since the enactment of the RiegleNeal Act, which allows interstate branch banking beginning from 1997, the number of large bank
mergers in the USA has increased significantly. Further research on mega mergers in the USA
suggests that merged banks experienced higher profit efficiency from increased revenues than
did a group of individual banks, due to the fact that they provide customers with high value
added products and services (Akhavin et al, 1997:95-135). Furthermore, consolidation may allow
a mega bank to enjoy a hidden subsidy which Kwan (2004:5) refers to as “too-big-to- fail”
subsidy due to the market’s perception of an illusion of government backing of a mega bank in
times of crisis. The Japanese experience also shows that the consensus has been that significant
economies of scale existed in the banking industry before the onset of the crisis and subsequent
reforms in the ‘90s at all levels of output throughout the industry (Fukuyama, 1993:1102-12;
McKillop et al, 1996:1651-71).
Consolidation in financial services in the USA and other industrialized countries has occurred
along three lines, namely: within the banking industry, between banks and other non-bank
financial institutions, and across national borders. In the USA, most of the consolidation that
took place occurred within the banking sector (McKillop et al, 1996:1651-71). For instance, in
that country, the number of banking organizations fell from about 12,000 in the early ‘80s to
about 7,000 in 1999, a decrease of over 40 per cent. In the USA and Canada, there has been a
trend towards consolidation of commercial banks and investment or merchant banks, whereas in
Europe, where the universal banking model is more prevalent, the trend has been to combine
banking and insurance business. While most of the bank consolidations in the developed

economies have occurred within the domestic front, there are signs of increased cross-border
activities. Such cross-border activities have been facilitated in Europe with the launch of the
Euro (Fukuyama, 1993:1102-12).
14


The trend towards financial consolidation in Europe, USA and Asia could be traced to several
factors. In the USA, one reason was the need to eliminate weak or problem financial institutions
during the thrift and banking crisis of the late ‘80s and early ‘90s. Some European countries
experienced similar problems with institutions weakened by exposure to real estate lending.
Advancement in telecommunication and information technology is another factor that has
accelerated the pace of bank consolidation. This is due to the fact that this factor has radically
reduced the cost of providing a host of financial services. The lessons to be drawn from the bank
consolidation in the advanced economies are that consolidation would result in fewer banking
institutions and more branches. It could also be an active instrument of capital market
development which could lead to financial sector stability. Apart from domestic M&As,
consolidation could lead to increase in cross-border M&As which could facilitate the inflow of
Foreign Direct Investment (FDI). Consolidation would certainly result in larger banks with
implications for bank concentration and the “too big to fail” syndrome (Adeyemi, 2010:13).
It is against this background that the former Governor of Central Bank of Nigeria, Prof. Charles
Soludo, in his maiden address, outlined the first phase of the banking sector reform designed to
ensure a diversified, strong and reliable banking industry (Adeyemi, 2010:7). Thus, Prof
Chukwuma Soludo pioneered the consolidated exercise on 1st July 2004 and it lasted for 1 ½
years till 31st December. The primary objective of the reform was to guarantee an efficient and
sound financial system. The reform was designed to enable the banking system develop the
required resilience to support the economic development of the nation by efficiently performing
its functions as the fulcrum of financial intermediation (Lemo, 2005:2). Thus, the reforms were
to ensure the safety of depositors’ money, position banks to play active developmental roles in
the Nigerian economy,
Furthermore, twenty-four out of the eighty-nine deposit-money banks that existed were said to

have exhibited one form of weakness or the other (Adeyemi, 2010:1). Prominent among such
weaknesses are under-capitalization and/or insolvency, illiquidity, poor asset quality, weak
corporate governance, boardroom squabbles, dwindling earnings and, in some cases, loss
making. The unhealthy competition that existed in the market, which was engendered by the
relative ease of entry into the market as a result of the low capital base, necessitated some banks
going into rent-seeking and non-banking businesses, which are not related to core banking
15


functions. Some of the banks were said to be preoccupied with trading in foreign exchange,
government treasury bills and sometimes, indirect importation of goods through surrogate
companies.
A review of the banking system as at June, 2004, reveals that marginal and unsound banks
accounted for 19.2% of the total assets, 17.2% of total deposit liabilities, while industry nonperforming assets were 19.5% of the total loans and advances. The implication of this
unsatisfactory statistics as noted by Lemo (2005:7) is that there existed threat of a systemic
distress judging by the trigger points in the CBN Contingency Planning Framework of December
2002, which stipulated a threshold of 20% of the industry assets, 15% of deposits being held by
distressed banks and 35% of industry credits being classified as nonperforming. From the
foregoing, it was apparent that a reform of the banking system in Nigeria was inevitable; it was
only a question of time (Lemo, 2005:7).
Consolidation in the banking sector has become a highly popular strategy in recent years. Thus,
more attention has been focused on its outcomes. Specifically, the extent consolidation serves as
a substitute for innovation, energy and attention required during negotiations, increased use of
leverage, increased size, and the greater diversification may have on managers' risk orientations.
Because of these effects, managers may reduce their commitment to innovation (Hitt, Hoskisson
and Ireland, 1990:22-26).
Consolidation may be an efficient way to eliminate the widely documented excess capacity in the
banking markets (Davis and Salo, 1998:17). In the presence of excess capacity, some banks are
below efficient scale, have an inefficient product mix, or may be inside the efficient frontier.
Consolidation may help solve these problems more efficiently than outright bankruptcies because

they preserve the franchise values of the merging firms. Moreover, there are several reasons to
doubt that the management efficiency effects of consolidation in financial institution as the 1990s
may differ from those in the 1980s. Gradual deregulation, technological innovations and the
associated increase in competition have induced banks to adapt their strategies. The resulting
focus on an optimal organizational design and improved efficiency tends to predict more
pronounced merger gains in the 1990s. On the other hand, consolidation also leads to increased
concentration, which may entail negative consequences for different bank customer segments.
Therefore, bank regulators and competition authorities, among others, are interested in gaining a
16


better understanding of the potential consequences of enhanced bank consolidation. Also the
competition for bank products which consolidation enhances may be detrimental to the bank
excessive competition is likely to create an unstable banking environment. The situation will
compel bank managers to undertake higher levels of risk in order to fully utilize the funds at their
disposal. The bank would take the place of the servant; while the customer would take the place
of the king (as it is meant to be). But, in the corrupt and fraudulent Nigerian scene (Uche,
1996:436-441), this may result in higher loan default rates, all amounting to inefficiencies in the
short term. One can only hope that, as time unfolds, the situation would gradually change for the
better as the banks start developing new ways of doing business.

As pointed out by Berger et al. (1999:135-94), a substantial amount of literature investigates the
causes and consequences of bank consolidation. Bank consolidation may be geared to exploit
economies of scale or scope, improve the X-efficiency of the consolidating banks, may enable
the merged banks to exercise increased market power, or may simply be motivated by the
management’s desire for increased size. Consequently, bank mergers may entail diverging effects
on cost and profit efficiency, as well as on loan and deposit pricing. To date, most of the
available knowledge on the performance effects of bank consolidation comes from scrutiny of
the US market (Piloff and Santomero, 1998:13).
Over the past decade, substantial research has been devoted to the question whether

consolidation in the banking industry enhances quality of management by the merging and
acquiring banks. Although the results show a great deal of cross-sectional variation, these
findings are consistent with management efficiency explanation of bank mergers. The authors
ascribe the fact that their results differ from those reported for US bank mergers to the different
structure and regulation of EU banking markets. These researches tend to be limited to EU and
US.
The literature suggests that there is a substantial potential for financial institutions improvements
in management from consolidation of banks. Most recent analyses find unexploited scale
economies even for fairly large bank sizes, both in the US (Berger and Mester, 1997:895-947;
Berger and Humphrey, 1997:175-212) and in Europe (Allen and Rai, 1996:655-672; Molyneux
17


et al, 1996:2; Vander, 2001:123-145). The prospects for scale efficiency gains appear to be
greater in the 1990s than in the 1980s. This finding is usually ascribed to technological progress,
regulatory changes and the beneficial effect of lower interest rates (Berger et al, 1999:135-194).
This evidence suggests that consolidation may substantially improve the management structure
when relatively efficient banks acquire relatively inefficient banks.
Yet, a lot of studies conclude that the potential gains are seldom realized. Studies on US bank
mergers find little or no improvements in management efficiency on average (DeYoung, 1997:1;
Peristiani, 1996:326-337; Berger, 1998:79-111). Apparently, the potential gains from
consolidating branches, computer operations, etc., may have been offset by managerial
inefficiencies or problems in integrating systems. Case study evidence suggests that the
efficiency effects of consolidation may depend on the motivation behind the mergers and the
consolidation process (Rhoades, 1998:273-291). Haynes and Thompson (1999:825-846) explore
the productivity effects of acquisitions for a panel of 93 UK building societies over the period
1981-1993. In contrast to much of the existing bank merger literature, the results indicate
significant and substantial productivity gains following acquisition. These gains were not the
result of economies of scale, but are found to be consistent with merger processes in which assets
are transferred to the control of more productive managements. Resti (1998:157-169) reports

increased levels of intermediation for Italian bank consolidation, especially when the deals
involved relatively small banks with considerable market overlap.
This study is an attempt to fill the gap by investigating the impact of bank consolidation on the
key stakeholders of financial institutions in the Nigerian banking industry. This is especially
important given the need to boost the productive base of the Nigerian economy and at the same
time empower the Nigerian citizens. The Niger Delta region until recently has witnessed youth
restiveness which has necessitated government to introduce several policies aimed at
empowering the youths as well as expanding the economy of the region given the region’s
contribution to the nation’s economy. Banks through their intermediation functions are expected
to play a significant role in the process. This process cannot be achieved without the banks’
ability to give out loans and advances to the deficit units of the region for productive investment.

18


It is against this background that this study sought to investigate the impact of consolidation on
key stakeholders of commercial banks in the Nigeria’s Niger Delta region in Southern Nigeria.
1.2

Statement of the Problem

In 1894, there was a merger when First Bank Ltd was metamorphosed and there were bank
distresses in the 1903s. The years, 1995 and 2005, were particularly traumatic for the Nigerian
banking industry; with the magnitude of distress reaching an unprecedented level, thereby
making it an issue of concern not only to the regulatory institutions but also to the policy analysts
and the general public. Thus, the need for a drastic overhaul of the industry was quite apparent.
In furtherance of this general overhauling of the financial system, the Central Bank of Nigeria
introduced major reform programmes that changed the banking landscape of the country in 2004.
The primary objective of the reform was to guarantee an efficient and sound financial system.
The reform was designed to enable the banking system develop the required resilience to support

the economic development of the nation by efficiently performing its functions as the fulcrum of
financial intermediation. Thus, the reform was to ensure the safety of depositors’ money, position
banks to play active developmental roles in the Nigerian economy, and become major players in
the sub-regional, regional and global financial markets as well as enhance management. Prior to
the banking sector consolidation programme induced by the CBN 13-point reform agenda, the
Nigerian banking system was highly oligopolistic with remarkable features of market
concentration and management inefficiency. The system was characterized by generally smallsized fringe banks with very high overhead costs, low capital base, heavy reliance on
government patronage.
There were challenges in examining how bank consolidation affected managerial role and
commitment of commercial banks in Nigeria’s Niger Delta Region, and difficulty in ascertaining
the effect of bank consolidation on performance of banks in Nigeria’s Niger Delta Region, the
difficulty in determining how bank consolidation affected employment of human resources in the
commercial banks in Nigeria’s Niger Delta Region, difficulty in ascertaining how bank
consolidation affected shareholders wealth value creation in commercial banks in Nigeria’s Niger
Delta Region, and the difficulty in determining the effect of bank consolidation on commercial
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borrower welfare in commercial banks in Nigeria’s Niger Delta Region. These challenges lead to
lack of gateways or barriers.
All these practices and daunting challenges are said to be associated with the handicaps faced by
Nigerian bank managers in striving to address the core roles of bank management which will
enhance operating efficiency, create value for shareholders, grow and thus create employment
opportunities as well as enhance job satisfaction of employees. An empirical investigation into
the effect of consolidation on bank management and key stakeholders, therefore, becomes
pertinent.

1.3

Objectives of the Study

There is need to address the above issues as they relate to consolidation of banks in Nigeria.
This study takes a holistic view of bank consolidation as an independent variable which is
characterized by recapitalization, increase in the capital base, merger and acquisition, deposit
equity swap, increase in shareholders’ forum and internal and external investors. In line with this
holistic perspective of bank consolidation the specific objectives of this study are stated below:
i.

To examine how bank consolidation affected managerial role and commitment of
commercial banks in Nigeria’s Niger Delta region

ii.

To ascertain the effect of bank consolidation on performance of commercial banks in

iii.

Nigeria’s Niger Delta Region.
To determine how bank consolidation affected employment of human resources in

iv.

commercial banks in Nigeria’s Niger Delta region
To find out how bank consolidation affected worker job satisfaction in commercial

v.

banks in Nigeria’s Niger Delta region
To ascertain how bank consolidation affected shareholders’ wealth value creation in

vi.

commercial banks in Nigeria’s Niger Delta region
To determine the effect of bank consolidation on commercial borrower welfare in
commercial banks in Nigeria’s Niger Delta region

1.4

Research Questions
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Based on the research objectives stated above, the following are the research questions for this
study, with the holistic view of bank consolidation:
i.

To what extent and in what way has bank consolidation affected managerial role and
commitment of commercial banks in Nigeria’s Niger Delta region?

ii.

How far and in what way has bank consolidation affected performance of commercial
banks in Nigeria’s Niger Delta Region?

iii.

How and to what extent has bank consolidation affected employment of human resources
in commercial banks in Nigeria’s Niger Delta region?

iv.

To what extent and in what way has bank consolidation affected worker job satisfaction
in commercial banks in Nigeria’s Niger Delta region?

v.

To what extent and in what way has bank consolidation affected shareholder wealth value
creation in commercial banks in Nigeria’s Niger Delta region?

vi.

How far has bank consolidation affected commercial borrower welfare in commercial
banks in Nigeria’s Niger Delta region?

1.5

Research Hypotheses

The following research hypotheses are formulated to guide the study, taking a holistic
perspective of bank consolidation:
H1

Bank consolidation has significant positive effects on managerial roles and commitments
of commercial banks in Nigeria’s Niger Delta region

H2

Bank consolidation has significant positive effects on performance of commercial banks
in Nigeria’s Niger Delta Region

H3

Bank consolidation has significant negative effects on employment of human resources in
commercial banks in Nigeria’s Niger Delta region

H4

Bank consolidation has significant negative effects on worker job satisfaction in
commercial banks in Nigeria’s Niger Delta region
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H5

Bank consolidation has significant positive effects on shareholder wealth value in
commercial banks in Nigeria’s Niger Delta region

H6

Bank consolidation has significant negative effects on commercial borrower welfare in
commercial banks in Nigeria’s Niger Delta region

1.6

Significance of the Study

This study is significant in many ways with particular reference to the following groups:
i.

Management: The decision making authority in banks lies in the hands of managers.

Shareholders as owners of the company are the principals and managers are their agents.
Thus, there is principal-agent relationship between shareholders and managers. Therefore
managers should and must act in the best interest of shareholders as consistent with
shareholders’ wealth maximization objectives of the bank. Therefore, this research will
enable management to understand what must be done in order to act in the best interest of
shareholders in choosing expansion measures which will help the bank achieve an
optimal structure that will maximize shareholders’ value.

ii.

Investors and Potential Investors: The major beneficiaries of an enhanced performance
of banks are shareholders otherwise called investors or potential investors. Their
contribution in monetary terms in the promotion, incorporation, continual existence to the
growth of the bank must be rewarded with a premium above their risk free rate, thus,
acting as a compensation for time and risk inherent in these firms. The choice of whether
to merge or acquire other banks ultimately affects the banks role in intermediation.
Therefore, this research will contribute along with other similar literature available in this
area of finance in enhancing the maximization of investors and potential investors’
objectives as concern the performance of the bank in their financial intermediation role.

iii.

The Academia: Essentially, this research shall contribute significantly to the volume of
literature available. In academics, the unknown is never exhausted, as the list of what we
do not know could go on forever. Therefore, as a contribution to this area, it will help to
push back the frontiers of knowledge. Localizing the research to the Nigerian settings and
environment is also particularly important.

1.7

Scope of the Study
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Given the homogeneity of banking products, this study examined the impact of the consolidation
policy on the management of commercial banks in Nigeria’s Niger Delta Region. In this regard,
dependent variables are managerial role, managerial commitment, organizational performance,
employment generation, shareholder wealth value, worker job satisfaction, and commercial
borrower welfare. The independent variables are bank re-capitalization, banks’ increase in
capital base, banks’ increase in shareholder’s funds, merger, acquisition, and increase in the use
of investors, all encapsulated in bank consolidation. The geographical scope is Nigeria’s Niger
Delta Region. The Niger Delta region is the hub of oil production in Nigeria; as such the policy
was expected to have an impact on the lives of citizens in the region through enhanced credit
availability to deficit earners in the region. However, without human element in management the
consolidation policy objectives though laudable may not achieve the desired result, hence the
rationale for this research. The period covered by this study is 2005-2010.
1.8

Operational Definition of Terms

Acquisition: A merger in which the seller corporation continues to operate and maintain its
identity (Baumback, 1992:518).
Consolidation: This is the coming together of two or more banks with all loosing their identity
and a new identity formed with the aim of increasing the capital base of the bank.
Employment Creation: This refers to the ability of banks to employ indigenes and community
members.
Job Satisfaction: This refers to the positive enthusiasm the worker exhibits while on the

job.

Merger: This is defined as “any of the various methods of combining two or more business
firms, such as consolidation and statutory merger” (Baumback, 1992:518). Specifically it occurs
if two or more companies combine in such a way that one of the firms remains in business after
the combination (Unamka and Ewurum, 1995:46).
Operating Efficiency: This involves using minimal resources to achieve maximum results.

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Shareholder Wealth Value: This refers to the net present value of investment of owners of
business

1.9

Brief History of Nigerian Banking Industry

Federal Government of Nigeria has been operating series of bank ‘changeovers’, ‘takeovers’ and
‘buyouts’ since 1892. The history of the Nigerian Banking industry could be divided into three
stages based on development in these stages. There are:
a. First Stage: The embryonic Phase
The African Banking Corporation, headquartered in South Africa pioneered the Nigerian banking
system in 1892 followed by the British Bank for West Africa’ (now First Bank of Nigeria Plc) in
1894 while Barclays Bank D.C.O. (now Union Bank of Nigeria Plc) and the British and French
Bank (now United Bank for Africa Plc) were established in 1925 and 1949 respectively
(Danjuma, 1993:5; Ebhodaghe, 1990:32; Ibru, 2006:3). The story of indigenous banking in
Nigeria began with the establishment of the National Bank of Nigeria Limited in February 1933,
Agbonmagbe Bank Limited (now Wema Bank Plc) in 1945, and African Development Bank
Limited, which later became known as African Continental Bank Plc in 1948. The establishment
of these indigenous banks ushered in the era that saw the constant monopoly erstwhile enjoyed
by the foreign owned banks challenged (CBN, 2008:; Ebhodaghe, 1990:13).

b. Second Stage: The Expansion Phase
The chain in banking industry stepped up to stage two (2) which is the expansion of the Nigerian
banking sector to the Rural Banking Scheme in1977, Peoples’ Bank in 1989, and Community
Banks (now Microfinance Banks) in 1990 to encourage community development associations,
cooperative societies, farmers' groups, patriotic unions, trade groups, and other local
organizations, especially in rural areas while between 1985 and 1991, banks sprout from 40 to
120 (Agbaje, 2008; Bichi,1996:28-29; Ebhodaghe, 1995:15; Mordi, 2004:25-30).
c. Third Stage: The Consolidation/Reform Stage
The phase staged on January 1, 2006 when the Nigerian eighty nine (89) banks shrunk to twenty
five (25). The consolidation exercise then required banks to raise their minimum capital base
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from N2 billion to N25 billion, with December 31, 2005 as deadline. This increase representing
about 1,150% was to amongst other things encourage the consolidation of the banking sector to
produce mega-banks from the then existing 89 banks as most of them were just fringe players
and financially unsound (Soludo, 2004:14). Other financial institutions included governmentowned specialized development banks: the Nigerian Industrial Development Bank, the Nigerian
Bank for Commerce and Industry, and the Nigerian Agricultural Bank, as well as the Federal
Savings Banks and the Federal Mortgage Bank. Also active in Nigeria were numerous insurance
companies, pension funds, and finance and leasing companies.
Somoye (2008:627-636) traces the Evolution of the Nigerian Banking Sector and says that
banking operation began in Nigeria in 1892 under the control of the expatriates and by 1945,
some Nigerians and Africans had established their own banks. The first era of consolidation ever
recorded in Nigeria banking industry from 1959-1969. This was occasioned by bank failures
during 1953- 1959 due mainly to liquidity of banks. Banks, then, do not have enough liquid
assets to meet customers demand. There was no well-organized financial system with enough
financial instruments to invest in. Hence, banks merely invested in real assets which could not be
easily realized to cash without loss of value in times of need. This prompted the Federal
Government then, backed by the World Bank Report to institute the Loynes commission on
September 1958. The outcome was the promulgation of the ordinance of 1958, which established

the Central Bank of Nigeria (CBN). The year 1959 was remarkable in the Nigeria Banking
history not only because of the establishment of Central Bank Nigeria (CBN) but that the
Treasury Bill Ordinance was enacted which led to the issuance of our first treasury bills in April,
1960.
The period (1959–1969) marked the establishment of formal money, capital markets and
portfolio management in Nigeria. In addition, the company acts of 1968 were established. This
period could be said to be the genesis of serious banking regulation in Nigeria. With the CBN in
operation, the minimum paid-up capital was set at N400, 000 (USD$480,000) in 1958. By
January 2001, banking sector was fully deregulated with the adoption of universal banking
system in Nigeria which merged merchant bank operation to commercial banks system
preparatory towards consolidation programme in 2004. In the ’90s proliferation of banks, which
also resulted in the failure of many of them, led to another recapitalization exercise that saw
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