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

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 ( x2 ) 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.

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 Riegle- Neal 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).

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

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 non- performing 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 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

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.

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 small-sized 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 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

Nigeria’s Niger Delta Region.

iii.    To  determine  how  bank  consolidation affected  employment  of  human    resources  in commercial banks in Nigeria’s Niger Delta region

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

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

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

1.4      Research Questions

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

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

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.

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 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 government- owned 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 bank’s capital being increased to N500million (USD$5.88) and subsequently N2 billion (US$0.0166billion) on 4th 2004 with the  institution of a 13-point reform agenda aimed at addressing the fragile nature of the banking system, stop the boom and burst cycle that characterized the sector and evolve a banking system that not only could serve the Nigeria economy, but also the regional economy. The agenda by the monetary authorities is also agenda to consolidate the Nigeria banks and make them capable of playing in international financial system.

However, there appears to be deliverance between the state of the banking industry in Nigeria vis-à-vis the vision of the government and regulatory authorities for the industry. This, in the main, was the reason for the policy of mandatory consolidation, which was not open to dialogue and its components also seemed cast in concrete. In terms of number of banks and minimum paid-up-capital, from 1952-1978, the banking sector recorded forty-five (45) banks with varying minimum paid-up capital for merchant and commercial banks. The number of banks increased to fifty-four (54) from1979-1987.

The number of banks rose to one hundred and twelve (112) from 1988 to 1996 with substantial varying increase in the minimum capital. The number of banks dropped to one hundred and ten(110) with another increase in minimum paid-up capital and finally dropped to twenty-five in

2006 with a big increase in minimum paid-up capital from N2billion(USD$0.0166billion) in January 2004, to N25billion(USD$0.2billion) in July 2004. Prior to the major policy shift by the Central Bank of Nigeria (CBN), Nigerian banking experienced a steady increase in the number of distressed deposit- money banks, i.e those rated by the CBN as marginal or unsound. This created  the  fear  that  Nigerian  banking  could  be  heading  towards  systematic  distress.  The marginal and unsound banks increased in number from seventeen (17) in 2001 to twenty three (23) in 2002 and 2003, and then twenty-seven (27) in 2004 representing thirty (30) per cent of

the operating banks in the system. This figure rose to seventeen (17) per cent only three years earlier. It can be argued that sudden monetary policy shifts was partially responsible for the increase in the  number of marginal and unsound banks in 2004. The  corollary is that  the institutions concerned have had inherent and deep-seated weakness that the policy shift exposes, and no matter what, they would have eventually become distressed. Goldfeld and Chandler (1981:4) and Somoye (2006:16) opine that any policy shift must be consistent with market framework if the objective of the policy is to be achieved. They decompose the total lag between the need for policy and the final effect of policy into four parts.

First, recognition effect, which refers to the elapsed time between the actual need for a policy action and the realisation that such a need, has occurred. Second, the policy lag, which refers to the period of time it takes to produce a new policy after the need for a change in policy must have been recognised. Third, outside lag, which is beyond the comprehension of policy, refers to the period of time that elapses between the policy change and its effect on the economy. This lag arises because individual decision makers in the economy will take time to adjust to the new economic condition. Decision of this nature must conform to monetary policy norms if it is to achieve its desired objective and fourthly, cultural lag, which measures the banking culture responsiveness to  policy change  in  a  predominantly poor  banking  habit  population. In the developing nation, banking culture is still primitive and any changes that may affect their culture take a great deal of education. They concluded that the effect of policy change which could have been distributed over-time and its impact felt was jettisoned. Such omission may bring negative cost to the economy. For instance, Goldfeld and Chandler (1981:5) state that monetary policy, though affects the economy less directly, will have a longer outside lag and that monetary policy tends to  influence  investment, and  the  lags  in  the  physical process of building plants and machinery are undoubtedly longer than the lags in producing consumer goods. Therefore, the longer outside lag of monetary policy must be balanced against the shorter policy lag in deciding the optimal policy mix (Somoye, 2008:627-636).

However, the reason that may advance for the present poor state of the Nigeria banking industry after consolidation could be viewed from the perspective of wrong planning. Consolidation through merger and acquisition and or buy-out requires assets clarification and cleansing of the balance  sheets  in  a  situation  where  unsound  banks  merge  with  sound  banks.  Therefore,

strengthening the balance sheet is imperative for those who seek to be acquired and those who are in pursuit of expansion. Banks that are unable to show financial stability through their balance sheets are  likely to  perish in an increasingly competitive industry as amplified by Shrivastava (1986:65-76); Somoye (2006:13) and Michiru and Sawada (2003:6). Shih (2003:13-

49) points out the possibility that credit risk could increase in the event of a sound bank merging with an unsound one. Also, most of empirical literature suggests that bank consolidations do not significantly improve the  performance and  efficiency of the  participant  banks Berger et  al (1999:135-194), and  Amel,  Barnes,  Panetta  and  Salleo  (2002:25). They conclude that  if  a voluntary consolidation does  not  enhance  the  performance  of  the  participating  banks,  any performance enhancing effect of the consolidation promoted by the government policy is more questionable.

1.10    Profile of the Nigerian Niger Delta Region

The Niger-Delta Region is made up of the following states: Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo Imo, Ondo and Rivers State. Niger Delta Development Commission (NDDC) was established in 2000 with the mission of facilitation the rapid, even and sustainable development of the Niger Delta into a region that is economically prosperous, socially stable, ecologically regenerative and politically peaceful.   The aim is to establish in the Niger Delta Region (NDR) a strong and progressive society in which no body will have any anxiety about basic means of life and work; where poverty and illiteracy no longer exist and are brought under control; and where our educational facilities provide all the children of NDR with best opportunities for the development of their potentials.

The Delta region has a steadily growing population estimated to be over 30 million people as of

2005, accounting for more than 23% of Nigeria’s total population. The population density is also among the highest in the world with 265 people per kilometer-squared. This population is expanding at a rapid 3% per year and the oil capital, Port Harcourt, along with other large towns are growing quickly. Poverty and urbanization in Nigeria are on the rise, and official corruption is considered a fact of life. The resultant scenario is one in which there is urbanization but no accompanying economic growth to provide jobs. This has  led to  a section of the growing populace assisting in destroying the ecosystem that they require to sustain themselves.

The Regional Development Master Plan

There have been many attempts and many plans made in the past to improve the lives of the people of the Niger Delta Region of Nigeria. Sadly, each ended with very little to show for the time and resources spent. Therefore it is understandable that the people of the Niger Delta are quite disillusioned with ‘plans’ at this time. The disenchantment of the people notwithstanding, it must be stated that the Niger Delta Master Plan is different in its goals, focus and approach, and will not suffer the fate of the others before it. The Master Plan is basically conceived as a tool that the millions of people of the Niger Delta Region can use to actualize their common vision and build their future to the standard they desire. The Master Plan is designed to offer stakeholders at all levels (individual, group and community) the opportunity to participate fully in the planning and decision making process… specifically, the coordinating consultants require the ideas and opinions of stakeholders as basis for defining focus areas for development and for producing a vivid picture of what the people want the Niger Delta region to look like within

15years of the master plan implementation. This implies that the input of stakeholders today is what will determine the state of affairs (both for individuals and communities) in the region tomorrow.

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