The government has decided to push for the creation of a new banking giant by merging the State Bank of India with its associate banks. The quest to create an Indian bank that will be in the league of global giants is an old one. It has been talked about since the economic reforms. However, not many are happy with this move.
Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Get Access Banking Sector Consolidation Essay Sample Since the bank consolidation promotion The banking consolidation directive essay of the Federal Government began in earnest last year, a number of reforms have taken place in the Nigerian Banking sector.
The ability of the industry players to embrace recapitalisation and the success of quite a number of banks in meeting the deadline stipulated by the regulatory authorities has indeed strengthened the faith of Nigerians in the financial system With banks now embracing consolidation as a means of recapitalisation as well as the successes that have been recorded in this direction within the past 15 months, there are positive indicators that the previously shallow Nigerian financial system is on the verge of radical deepening.
The paper set out to examine the emerging trends in bank consolidation within the Nigerian banking sector till date with the aim of outlining strategies that will ensure increased efficiency and greater social and capital returns to both Nigerian banks and the national economy in a post consolidation era.
In doing this, it will highlight the various challenges being faced by banks in the consolidation process and list out tested options to ensure that Nigerian banks achieve greater returns in real terms while improving on service delivery and repositioning for greater efficiency.
Many critics of the consolidation policy of the Federal Government have been proven wrong. It is now apparent that the need for recapitalisation and consolidation was justified and the directive was well informed.
The developments in the sector in the past months have opened channels for new prospects for the industry and placed it in prime position to be the driving force for the expansion of the Nigerian economy. The task before the industry now is to ensure that the objectives behind the reforms which generally constitute building and fostering the development of a competitive and healthy financial system that is supportive of the development process, forestalling the incidence of systemic distress and deepening the financial system both in terms of the volume of assets and diversity of the financial instruments is achieved.
The reforms are also geared towards ensuring that banks become stronger players in a manner that will ensure longevity and hence higher returns to shareholders over time and greater impacts on the Nigerian economy Soludo In doing this, banks must lay down proven strategies that will maximise returns not only in monetary terms, but also in the overall development of the Nigerian financial sector, its people and the economy as a whole.
Rather it is a global phenomenon that is all embracing, not just in banking but also in major sectors such as oil and gas, telecommunications and information technology. Bank consolidation has successful taken place in America, with over mergers, in the United Kingdom and even more recently in developing economies such as Malaysia.
Bank consolidation has been at the forefront of the deepening of the financial systems of many developed and developing countries. It is on the basis of this that the Central Bank felt compelled to begin a policy initiated consolidation drive to further strengthen the capital base of Nigerian banks placing them in a better position to render long and short term finance for the development of the real sector of the economy.
The state of the Nigerian banking industry in the preconsolidation era was unacceptable to say the least. The mergers of banks and subsequent growth of capital base, assets and lending capacity is to reduce operating costs to a minimum, reduce the insolvency risk through asset diversification, boost the realization of efficiencies of scale, delivery of competitive returns on equity, diversify products and services and subsequently strengthen the financial sector.
This is all the more imperative, not just for the interest of the Nigerian economy but also in strategically positioning the industry to keep at pace with international standards.
Furthermore, it is envisaged that the Nigerian industry will soon expand beyond our national borders thus it is imperative for banks to be in a position to establish themselves especially in West Africa.
Another reason is that many of the banks in the industry are not as sound as they initially appeared to be. This is manifest in the rate at which many banks pulled out of their initial merger arrangements even in cases where memoranda of understanding had been signed.
There have been serious disputes as to the exact values of many company assets and the extent of their debts and liabilities, unserviceable loans etc.
It must be noted here that these are not unconnected with mergers and acquisitions all over the world and will naturally be ironed out in the course of time. With most banks focussing initially on recapitalisation through share offerings on the capital market by initial public offerings IPOsrights issues and private placements or injection of foreign capital in some cases, it is no surprise that the consolidation process has assumed its present pace.
Most banks that harboured consolidation plans still needed to recapitalise through the capital market in order to strengthen their positions ahead of consolidation. To date, there have been less than five successful mergers in the industry but as the deadline given by the Central Bank of Nigeria draws nearer, it is hoped that more will follow.
The problem with the Nigerian banking industry during the pre-consolidation era was not that banks were not generating returns, but rather, it was the nature of the returns that were being generated that constituted a problem.
Returns were predominantly in the form of interest on treasury bills in the money market, percentages on foreign exchange transactions and even in some cases, profits from direct importation of goods by banks under the names of fictitious companies.
These banks declared outstanding profits at the end of their financial years to the admiration of shareholders and the detriment of the Nigerian economy. This is definitely not in the spirit of the reform agenda.
Thus this paper will be looking at returns that can be achieved through strategies that encourage the practice of core banking functions as well in relation to human capital and overall national economic development.
To this end, banks must develop products and services that will satisfy a wide and diverse client base in order to achieve their trust and support in the years to come. Stringent measures to ensure effective risk management must be put in place and greater transparency and consistency should be employed in reporting to regulatory authorities.
Banks must be more innovative and balance this with world class standards in operations at all levels. Facing up to these challenges require new and dynamic strategies that boost revenues, improve operational efficiency, cut costs, and enhance the overall profitability of the banking industry in Nigeria.Banking Sector Consolidation Essay Sample Since the bank consolidation promotion policy of the Federal Government began in earnest last year, a number of reforms have taken place in the Nigerian Banking sector.
When a big bank books huge loss or crumbles, there will be a big jolt in the entire banking industry. Its repercussions will be felt everywhere. Also, India right now needs more banking competition rather than more banking consolidation.
Banking Consolidation Directive (/48/EC) Toggle Table of Contents Table of Contents. Ctrl + Alt + T to open/close.
Links to this primary source; Content referring to this primary source; Practical Law coverage of this primary source reference and links to the underlying primary source materials. “banking consolidation directive”; (e) in paragraph 20(3), for “a banking co-ordination directive” there is substituted “the banking consolidation directive”; and (f) in paragraph 24(1)(b), for “Article of the second banking co-ordination directive” there is substituted “Article .
The first part will focus the reasons, trends and effects of consolidation in banking industry. The second part is mainly about the benefits and disadvantages of consolidations for the industry and society.
The last part is evaluation about challenges consolidation bring to the regulators. caninariojana.comidation in . banking consolidation in India and other Asian economies. Finally, section VII concludes the paper.
II. Impact of Mergers: Review of Literature The two important issues examined by several academic studies relating to bank mergers.