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BANKING SECTOR CONSOLIDATION IN NIGERIA: ISSUES ANDCHALLENGES
ByDR. K. S. ADEYEMIEXECUTIVE DIRECTOR UNION BANK OF NIGERIA PLC.
ABSTRACT
 
This paper examines the issues and challenges arising from the recently concluded banking sector reform programme in Nigeria. It notes that since the consolidation programme was policy induced, the 18 months given for total compliance appeared inadequate, given the number of activities required for a merger or acquisition to be successfully consummated. The author, however, acknowledges that the programmecould lead to the emergence of a sound and efficient financial system that would support the growth and development needs and aspirations of the Nigerian economy. Towards fully harnessing the synergies and potentials of the consolidation programme, the paper calls for continuous training and retraining of staff as well as proper handling of post-consolidation challenges.
 
 BANKING SECTOR CONSOLIDATION IN NIGERIA: ISSUES ANDCHALLENGESByDR. K. S. ADEYEMIEXECUTIVE DIRECTOR UNION BANK OF NIGERIA PLC.
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INTRODUCTION
 It is incontrovertible that the banking system is the engine of growth in anyeconomy, given its function of financial intermediation. Through this function, banks facilitate capital formation, lubricate the production engine turbines and promote economic growth. However, banks’ ability to engender economicgrowth and development depends on the health, soundness and stability of thesystem. 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 the enterprise. It is, therefore,not surprising that the banking industry is one of the most regulated sectors in anyeconomy. It is against this background that the Central Bank of Nigeria, in themaiden address of its current Governor, Prof. Charles Soludo, outlined the first phase of its banking sector reforms designed to ensure a diversified, strong andreliable banking industry.The primary objective of the reforms is to guarantee an efficient and soundfinancial system. The reforms are designed to enable the banking system developthe required resilience to support the economic development of the nation byefficiently performing its functions as the fulcrum of financial intermediation(Lemo, 2005). Thus, the reforms were 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.The key elements of the 13-point reform programme include:
 
Minimum capital base of N25 billion with a deadline of 31st December,2005;
 
Consolidation of banking institutions through mergers and acquisitions;
 
Phased withdrawal of public sector funds from banks, beginning fromJuly, 2004;
 
Adoption of a risk-focused and rule-based regulatory framework;
 
Zero tolerance for weak corporate governance, misconduct and lack of transparency;
 
 
Accelerated completion of the Electronic Financial AnalysisSurveillance System (e-FASS);
 
The establishment of an Asset Management Company;
 
Promotion of the enforcement of dormant laws;
 
Revision and updating of relevant laws;
 
Closer collaboration with the EFCC and the establishment of theFinancial Intelligence Unit.Two of the above reform elements which have since generated so much concernand reactions from various stakeholders are:
 
Requirement that the minimum capitalization of banks should be N25 billion with full compliance by 31
st
December, 2005 and
 
Consolidation of banking institutions through Mergers and Acquisitions.Since the first phase of the banking sector consolidation programme has now beenconcluded, the objective of this paper is to examine the issues and challenges posed by the implementation of the programme. Following from the aboveintroduction, the rest of the paper is divided into five sections. Section twooutlines the characteristics of the Nigerian banking industry prior to theconsolidation programme, while section three examines the need for consolidation, reviews the trend in bank consolidation and discusses the strategiesadopted by Nigerian banks in the consolidation process. Section four examinesthe issues and challenges that confronted the consolidation programme. Sectionfive proffers solution while section six concludes the paper.
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CHARACTERISTICS OF THE NIGERIAN BANKING INDUSTRYBEFORE THE CONSOLIDATION PROGRAMME
Prior to the just concluded banking sector consolidation programme induced bythe CBN 13-point reform agenda, which was announced on 6
th
July, 2004, the Nigerian banking system was highly oligopolistic with remarkable features of market concentration and leadership. For instance, Lemo (2005) notes that thetop ten (10) banks were found to control:
 
More than 50% of the aggregate assets;
 
More than 51% of the aggregate deposit liabilities; and
 
More than 45% of the aggregate credits.Thus, the system was characterized by:
 
Generally small-sized fringe banks with very high overhead costs;
 
Low capital base averaging less than $10million or N1.4 billion;
 
Heavy reliance on government patronage (with 20% of industry depositsfrom government sources)Furthermore, twenty-four out of the eighty-nine deposit-money banks that existedthen exhibited one form of weakness or the other. Prominent among suchweaknesses are under-capitalization and/or insolvency, illiquidity, poor asset
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Paschal Omenihu

We keep opening more universities every year as if that is our problem. where Ghana is there feeding fat as a result of our lack of planing and following of lay down rules. In Nigeria we make good policies and guide lines but all end as white papers. where some are implemented no proper supervision.My only happiness is that each an every one of us will give account of our stewardship to God one Da

reply05 / 01 / 2012
Paschal Omenihu

For me our leaders has no will power. To them Nigeria is seen as an entity were if you are chanced grab as much as you can and that is really what they are doing. But my warning to them all is that who ever that is eating what belongs to his kinsmen will one day pay for it.

reply05 / 01 / 2012
Paschal Omenihu

CBN, must question every money that comes from all the staffs of our federal para starters. Not all money is Good Money.CBN,should equally look in ward and fish out all the bad eggs among them who are edging this money in transferring all this money . Is really uncalled for the rate we are going. Something must be done now to save us.

reply05 / 01 / 2012
Paschal Omenihu

and their external Auditors. The issue of petroleum subsidy wahala,and the of pension fund were all witnessed by external auditor.Yes their assessment is based on information presented to them. Why is it that if this same information is given to other external auditors outside Nigeria we have a different and a better assessment. The attitude of our banks and our bankers must change.

reply05 / 01 / 2012
Paschal Omenihu

The problem of our country ,Nigeria is not the system of Government we are operating rather the Human factor, i mean Nigerians. we are the problem, and the early we identify this the better for our generation unborn. I am particularly concern for the generation unborn, because from all ramification we have no plan for them.If we must address corruption head to head,we must address our Banks

reply05 / 01 / 2012
Foluso Obi

Good work. Keep it up. Pls can i have a copy? send to folusoobi@yahoo.com

reply04 / 04 / 2012
Abdulkadir Tanimu

what are the roles of journalists in nigeria

reply09 / 07 / 2011
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