Essentially, this study assesses the effect of reconsolidation in the banking industry on the Nigeria economy using the First Bank of Nigeria Plc as a case study.


The fundamental issues which the study intent to test are; the significance of the reforms on the banking industry and the possible correlation between the reforms and the aggregate economy performances. The research methodology used for the test of these hypotheses was basically primary data using questionnaire for their extraction. The extracted data were presented in form of frequency distribution table, while the analysis and interpretation were through the use of simple percentages. More also, in order to provide empirical support for the research study all the hypotheses were tested using the chi-square statistical method.


In the course of the findings, it was revealed that reconsolidation in the banking industry has not only redefine the nature of competition in the sector, but has also generated more employment opportunities in the country.


It is the conclusion of this study that for the reforms to produce positive impact on the macro economy there should be effective implementation of the programme.



Title Page

Dedication                                                                    i

Declaration                                                                   ii

Certification                                                                  iii

Acknowledgment                                                           iv

Abstract                                                                        vi

Table of Contents                                                          vii


Chapter One: Introduction

1.1       Introduction                                                         1

1.2       Statement of Research Problem                            4

1.3       Purpose of the Study                                            5

1.4       Statement of the Research Questions                   6

1.5       Statement of Research Hypothesis                       7

1.6       Significance of the Study                                      8

1.7       Scope and Limitation of the Study                        9

1.8       Definition of Terms                                               9


Chapter Two: Literature Review

1.1       Introduction                                                         12

1.2       Consolidating the Nigerian Banking Industry       13

1.3       The Performance of Nigerian Banking Industry in

        1990-2004 Period                                                    22

1.4       Challenges Facing Banking Industry in Nigeria

(Pre-Consolidation)                                               27

1.5       The Rationale for Consolidation in the Banking

        Sector                                                                   32

1.6       Summary of the Review                                        35

Chapter Three: Research Methodology

3.0   Methodology                                                         37

3.1   Research Design                                                   38

3.2   Re-Statement of Hypothesis                                 38

3.3   Population and Sample Size                                 39

3.4   Techniques of Data Collection                              39

3.5   Questionnaire Assumption                                   40

3.6   Questionnaire Administration                              40

3.7   Limitation of the Study                                         40


Chapter Four: Presentation and Analysis of Data

4.0       Introduction                                                         41

4.1   Presentation and Analysis of Data                        42

4.2   Testing of Research Hypothesis                            58


Chapter Five: Summary, Conclusion, Recommendations and Suggestions for Further Studies

5.1     Summary                                                              63

5.2     Conclusion                                                           66

5.3     Recommendations                                                68

5.4     Suggestions for Further Studies                           69

        References                                                            70

        Appendix I                                                            73

        Appendix II                                                           74

        Appendix III                                                          77

        Appendix IV                                                          78

        Appendix V                                                           79

        Appendix VI                                                          80






It is incontrovertible that the banking system is the engine of growth in any economy; it gives its function of financial intermediation. Through this function, banks facilitate capital formation, lubricate the production engine turbines and promote economic growth. The relevance of banks in the economy of any nation cannot be over emphasized. They are the cornerstones, the linchpin of the economy of a country.


The economies of all market-oriented nations depend on the efficient operation of complex and delicately balance systems of money and credit. Banks are an indispensable element in these systems. They provide the bulk of the money supply as well as the primary means of facilitating the flow of credit. Consequently, it is submitted that the economic well being of a nation is a function of advancement and development of her banking industry.


However, bank’s ability to engender economic growth and development depends on the health, soundness and stability of the system. The need for a strong reliable and viable banking system is underscore 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 the enterprises.  It is therefore, not surprising that the baking industry is one of the most regulated sectors in any economy. It is against this background that the central bank of Nigeria, in the maiden address of its current governor, Prof. Charles Soludo, outlined the fist phase of its banking sector reforms designed to ensure a diversified strong and reliable banking industry.


It must be noted that banking sector reforms has been an integral part of the economic reforms which began in Nigeria in the mid- 1980s with the adoption of the structural adjustment programme (SAP). Four phases of banking sector reforms are easily discernable in Nigeria since 1986. They are as follows:

a.           First phase is the financial systems reforms which led to deregulation of the banking industry, in addition to credit, interest rate and foreign exchange policy reforms.

b.          The second phase began in the late 1993-1998, with the re-introduction of regulations. During this period, banking sector suffered deep financial distress which necessitated another round of reforms, designed to manage the distress.

c.           The third phase began with the advent of civilian democracy in 1999 which saw the return of liberalization of the financial sector, accompanied with the adoption of distress resolution programmes.

d.          The fourth phase of the financial sector reforms which began since July 6, 2004 to December 31, 2005 is what I tagged as the “Soludo Model”.


The case study of this research work is the first bank of Nigeria Plc which was incorporated as a limited liability company on March 31, 1894, with the Head Office in Liverpool by Sir Alfred Jones, a shipping magnate. It started business in the office of Elders Dumpster with company in Lagos under the corporate name of the bank for British West Africa (BBWA) with a paid-up capital of 12,000 pounds sterling after absorbing its predecessor; the African banking corporation, which was established earlier 1892.


In its early years, the Bank worked closely with the colonial governments of British West Africa by performing the traditional functions of a central Bank, including the issue and distribution of species in the West African sub-region.

Consequently, the Bank recorded impressive growth, opening its first branch office in Accra, Ghana in 1896, and a second branch in Freetown, Sierra Leone, two years later (1958). These marked the beginning of the Bank’s international banking operations.


By 1963, the Bank had 114 branches in West Africa. 59 of these were in Nigeria, 41 in Ghana, 11 in Sierra Leone, 1 in the Gambia and 2 in Cameroon.



It is not a gain saying that reconsolidation in the banking industry has immensely improved the economy growth and economy development of the country. Despite this achievement, the process of the consolidation has been confronted with a lot of challenges, thereby while some banks are improving both in products and services; others are yet to find their bearing in creating positive impact on the economy.


This study is aimed at investigating the impact of reconsolidation in the banking industry on the Nigerian economy which has raised a number of fundamental issues such as the timeline given for the consolidation programmes without considering the high cost that is involved in the process of merging and acquisitions. More also, some of the consolidating banks find it difficult to cooperate with one another. There is also the problem of corporate government and Information and Communication Technology (ICT) related issues. All these issues form the basis for the study.



The purpose of this research work is to evaluate the effect of reconsolidation in the banking industry on the Nigerian economy and to look into the issues that confront the industry during both pre-consolidation and post consolidation arena. Thus in the course of this study, the following issues are expected to be achieved:

1.          To evaluate the rationale for-re-consolidation in the banking sector.

2.          To evaluate the performance of the Nigerian banking industry from 1990-2004 period.

3.          To analysis the nature and assessment of banking sector consolidation.

4.          To evaluate the impact of the consolidation programme on the banking industry and on the Nigerian economy.

5.          To appraise the challenges and matters arising from consolidation issue. 

6.          The prospect and the way forward in the industry.



The growth experiencing in the banking industry and their positive impact on the Nigerian economy as a result of re-structuring in the sector has generated the following research questions:

1.          What are the factors that necessitated re-consolidation in the banking industry?

2.          How will the banking industry cope with the challenges of aftermath of the reforms?

3.          Does the banking industry will be able to bear the cost of merging and acquisition due to the policy?

4.          Is there any significant impact between re-consolidation in the banking industry and the aggregate performance of the Nigerian economy?



The most important step a researcher takes in attempting the study of any relationship between variables is to express this relationship in mathematical form, that is, specified the model with which the economic facts will be employed empirically. This process is called the formation of maintained hypothesis.   The formation involves the determination of both the dependent and independent variables. Thus in the course of this research work, the hypotheses to be tested are:

1.          H0: That banking industry performance has not improved significantly despite the reconsolidation in the industry.

H1: That banking industry performance has improved significantly due to the reconsolidation in the industry.

2.          H0: That there is no correlation between the reforms in the banking industry and the aggregate economic activity.

H1: That there is correlation between the reforms in the banking industry and the aggregate economic activity.



This research would throw more light on the effect of re-consolidation in the banking industry on the Nigerian economy, with special references to First Bank of Nigeria Plc. The finding of the study will be relevant to the following:

a.           To the management of First Bank of Nigeria Plc

b.          To Lagos State University for academic purpose

c.           To other firms in the banking industries

d.          To any individual or group who might want to carryout research on same related topic in future.

e.           To the researcher to academic purpose and as a sign of achievement.



The scope of this research work is to highlight the effect of reconsolidation in the banking industry on the Nigerian economy with references to First Bank of Nigeria Plc. The study is, however limited due to time and financial constraints.



1.          Acquisition: This is also called (takeover) is the purchase of a controlling interest in one company by another company.

2.          Bank Incense: Is the authority given to a bank to operate as business entity.

3.          Central Bank: Is the apex regulatory authority of the financial system.

4.          Commercial Banks: Are financial institutions where money and other valuables are kept for safe custody.

5.          Consolidation: Is the way of making a firm or an industry more efficiency and better capitalized.

6.          Capital Base: Is the amount that is required by the authority for the establishment of an organisation.  

7.          Deregulation: Is the withdrawal of government policies, laws and actions that could restrain the entry and exist of any organisation into any sector or industry.

8.          Distress: Is the instability and weakness of bank.

9.          External Reserve: Is the aggregate stock of internationally acceptable assets held by the central bank to settle a deficit in a country’s balance of payments.

10.      Financial Market: Is a mechanism by which surplus and deficit units of an economy can be brought together.

11.      Monetary Policy: Refers to the credit control measures adopted by the central bank of a country. 

12.      Mergers: Is an amalgamation between two separate companies to form a single company.

13.      Memorandum of Understanding: Is a record of legal agreement between two separate companies that wish to merge as single company.

14.      Macro Economic Variables: These are the targets and objectives of monetary authority which they want to achieve at a specific period to time.

15.      Over Capitalization: Is an inefficient working capital management that results in excessive stocks, debtors and cash and very few creditors.

16.      Private Placement: Is an arrangement where by an issuing house arranges for the company shares to be bought privately by small number of investors such as high net worth individuals and institutional investors. 

17.      Public Offer: Is a means of selling share of a company to the public at large with an issuing house acting as agent and underwriter.

18.      Right Issue: Is a method of raising new share capital whereby an offer is made to existing shareholders inviting them to subscribe cash for new shares in proportion to their existing shareholdings.

19.      Shareholders are he owners of the firm.

20.      Universal Banking: Is an authority given to a bank to decide on its own portfolio of business select appropriate delivery channels and infrastructure within and applicable regulatory framework.   

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