The Effect of Bank Consolidation on Bank Performance

Filed in Articles by on January 28, 2022

– The Effect of Bank Consolidation on Bank Performance –


The banking sector is one of the few sectors in which the shareholders fund is only a small proportion of the liabilities of the enterprise hence; the banking sector is one of the most regulated sectors in any economy as is the case in Nigeria.

This is to forestall the confusion and consequences of bank failures and distresses. The consolidation of banks has been the major policy instrument being adopted in correcting deficiencies in the financial sector in the world all over and hence the 2005 concluded bank consolidation exercise in Nigeria.

It also explains why there have been continued research that emphasises finding out how the benefits arising from consolidation have been optimized. Most of the previous studies on the subject, however, made use of data from the United States of America, Europe, and advanced Asian countries.

Such studies undermined the peculiarities of and differences in the operating environments and changing dynamics of business in most developing countries.

The objectives of this work are: – To ascertain if 2005 concluded consolidation has improved the profitability of consolidated banks; to find out if 2005 concluded consolidation has enhanced cost-saving for consolidated banks, and to ascertain if 2005 concluded consolidation has reduced the credit risk of consolidated banks.

This study used Ex-post facto research design and lies within the measurement of bank performances using variables such as Return on Equity (ROE) to measure profitability improvements.



Title Page                 i

Approval Page                   iii

Certification               iv

Dedication              v

Acknowledgement vi

Abstract                          viii

List of Tables             xii

List of Figures           xiii

List of Appendixes            xiv


  • : Background to the Study 1
  • : Statement of the Problem 3
  • : Objectives of Study 4
  • : Research Questions 5
  • : Research Hypotheses 5
  • : Scope of Study 5
  • : Significance of Study 6
  • : Limitations To The Study 7

References.            8


  • : Banking In Nigeria and Subsequent Recapitalisation 10
  • : Reforms in The Nigerian Banking Sector         14
  • : Empirical Review of Banking System Consolidation

And The Nigerian Experience.         16

  • : Factors/ Causes of Consolidation 16

2.3.1a: Value-Maximising Motives  and Non-Value-Maximising Motives     17

  • b: Environmental Factors/ External Forces That Influences The Pace

And  Form Of Consolidation       18

  • : Factors Discouraging Consolidation      19
  • : Patterns/Methods of Consolidation        23
  • : An Empirical Overview of The Nigerian Banking   24
  • : Empirical Review of Commercial Bank Performances In

The Post Consolidation Period in Nigeria         28

  • : An Empirical Review of Soludo’s Perspective Of

Banking Sector Reforms In Nigeria        30

  • : An Empirical Review of Banks Consolidation In Nigeria:

A Synergistic Harvest         31

  • : Empirical Review of The Global Trends In Bank Consolidation 32
  • : Effects of Consolidation In United States 33
  • : Effects of Consolidation In Japan 35
  • : Effects of Consolidation In Europe 39

Empirical Review (Mis)Using Bank Share Capital As A

Regulatory Tool to  Force Bank Consolidations In Nigeria     42

  • : An Empirical Review of Recapitalization And Banks’ Performance:

A case study of Nigerian Banks     45

  • : Empirical Review of The Short-Term Effect of The 2006 Consolidation on the Profitability of Nigerian Banks 48

References.                  51


  • : Research Design 53
  • : Nature and Sources of Data 53
  • : Sample Size 54
  • : Sampling Technique 56
  • : Models’ Specification 56
  • : Technique of Analysis 58

References.                 61


  • : Descriptive Statistics of Research Variables 62
  • : The Pre-Consolidation Period 62
  • : The Post-Consolidation Period 65
  • : Test of Hypothesis 69

References               75


  • : Summary of Findings 76
  • : Comparison of Findings and the Objectives of Study       77
  • : Policy Implications of the Findings 79
  • : Major Contributions of the Outcomes to Knowledge         80
  • : Conclusion 81
  • : Recommendations 82
  • : Recommended Areas for Further Studies 83

References                        85

Appendix                         86

Bibliography                98



Background of Study

Adeyemi (2006) points out that the need for a strong, reliable, and viable banking system is underscored by the fact that the industry is one of the few sectors in which the shareholders fund is only a small proportion of the liabilities of an enterprise

It is, therefore, not surprising that the banking sector is one of the most regulated sectors in any economy as is the case in Nigeria.

Banking reforms have been an ongoing phenomenon around the world right from the 1980s, but it is more intensified in recent times because of the impact of globalization which is precipitated by continuous integration of the world market and economies (Adegbagu & Olokoye 2008).

Banking reforms involve several elements that are unique to each country based on historical, economic, and institutional imperatives.

In Nigeria, the reforms in the banking sector preceded against the backdrop of the banking crisis due to the highly undercapitalization of deposit-taking banks; weakness in the regulatory and supervisory framework.

Banking sector reforms and recapitalization have resulted from deliberate policy responses to correct perceived or impending banking sector crises and subsequent failures.

A banking crisis can be triggered by weakness in the banking system characterized by persistent illiquidity, insolvency, undercapitalization, a high level of non-performing loans, and weak corporate governance, among others.



Adam, J. A (2005) ‘‘Banking sector reforms the policy challenges o bank consolidation In Nigeria”. A paper presented at the 46th Nigeria Economic Society (NES) Annual Conference, Lagos 23rd 25th August.

Adegbaju, A.A. and Olokoyo, F.O. (2008). “Recapitalisation and bank performance: A case study of Nigerian banks”. African Economic and Business Review.Vol.6 No.1.

Adeyemi, K.S. (2006). “Banking sector consolidation in Nigeria: Issues and challenges”. Comet, January 3.

Afolabi, J. A. (2005). “Implications of the consolidation of banks”.Error! Hyperlink reference is not valid. (Accessed on 04/01/2010)

Ajayi, M. (2005). “Banking sector reforms and bank consolidation: Conceptual


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