CHAPTER ONE

1.0     BACKGROUND OF THE STUDY

The recapitalization and consolidation exercise in the banking industry by the former Central Bank of Nigeria Governor, Professor Charles Soludo has necessitated the need for different organization to engage in corporate Consolidation (mergers and acquisition). The concept of recapitalization refers to the current trend of compelling all commercial banks to raise their capital base from 2billion to 25billion Naira by the Central Bank of Nigeria on or before 31st December 2005. This has sent approximately of these banks on the go to consider Merger and Acquisition as a survival approach.

WHERE WE WERE BEFORE CONSOLIDATION

89 banks including 3,382 branches predominantly in the urban centres as at June 2004   characterized by structural and operational weaknesses such as:

Low capital base ; Dominance of a few banks
Insolvency and illiquidity.
Over dependence on broadcast sector deposits and foreign exchange trading.
Poor asset quality.
Weak corporate power; A system including low depositor confidence.
Banks including the intention of could not effectively support the real sector of the company at 24% of GDP, compared to Africa average of 78% and 272% for developed countries.

1.0.1 THE VISION OF CONSOLIDATION ARE AS FOLLOWS:

As Africa’s financial centre and CBN as one the best in the world
Facilitate evolution of a strong and prudent banking system
Improve transparency and answerability in the sector
Drive down the cost structure of banks and make them more competitive and development oriented
A new Banking system including the intention of depositors can entrust and investors can rely upon usher in a new economy

There are indications including the intention of banks are currently favourably disposed to Consolidation (merger and acquisition) after considering various options available to them on account of the introduction of the 25billion Naira recapitalization, which will also send most of the banks Managing Directors and their boards to meetings and marshalling of game plans from the preliminary intelligence from the negotiation table, banks could have several options to explore. In an attempt for banks to meet up including the new requirement, approximately Banks are exploring the option of inviting foreign investor to buy into Banks. Other are looking at the possibility of getting investor to shore up their capital, and approximately are looking at the capital promote option, while others are considering mergers and acquisition.

This process of recapitalization of recapitalization and restructuring of Nigeria (commercial) banks has been gathering pace since the choice was made by CBN on the recapitalization of Nigeria Banks from 2billion to 25billion naira by December 31st, 2005. The proposed recapitalization as confirmed by the CBN governor, Professor Charles Soludo, is a subtle way to compel Nigeria Banks to merger so as to strengthen in totality the Nigeria banking system through Consolidation (mergers and Acquisition). The process would further enable the banking sector to meet up including international standards.

Apart the pronunciation by Professor Charles Soludo, the contemporary change in banking has necessitated the need for different banks to engage in corporate Consolidation. The Oxford Advance learner English dictionary fourth edition (1999), defines consolidation as a positive of power or success stronger so including the intention of it is more likely to continue and Merger as the combination of commercial companies into one. Acquisition on the other hand was defined by another source as a company taking a controlling ownership interest in another firm, could be legal subsidiary of another firm or selected asset of another firm.

It may occupy the buys of another firm asset or stock including the bought firm continued to exist as a legally owned subsidiary require. For the purpose of this study, mergers and acquisitions will be deemed to have occurred when two or more organisation join together all or part of their operations. Globally, such business combinations have involved various sizes of companies as well as assets and have cut across economic sectors. While many business combinations have been well received by parties involved, other have done so including stiff resistance often resulting in lingering battles to prevent the combinations.

Including the latest CBN regulation and the systematic withdrawal of Federal funds from the banks, a lot of banks are on the brink of extinction. As a result of this a lot of banks are currently any vacant broadcast or trying to position themselves as banks of  choice for possible merger or acquisition by other banks. This new development would also impact on employment, as most top management would be affected and other young personnel would be thrown into the labour promote in the bid to have the required number of directors by the regulatory authorities and on the economy at large.

In Nigeria today, a number of banks wanting to merge may run into difficulties, since most Nigeria banks are not quoted on the stock exchange and the assets of approximately are really terrible. The effect of the merger is including the intention of merging banks in the country, under the current dispensation may lose their licenses and be issued new ones to reflect the new consolidated outfit. As we go on in the subsequent chapters, further critical look shall be taken on the effect including the intention of this development is likely to or will have on the Nigeria banking industry and the economy at large.

1.1    STATEMENT OF PROBLEM

Business organisations are recently considering Consolidation (Mergers and Acquisition) as an alternative means of recapitalizing. The current trend of compelling all commercial banks to raise their capital base from 2billion to 25 billion naira by CBN on or before 31st December 2005 has sent approximately of these banks on their heels to consider Merger and Acquisition as a survival approach.

The expected problems regarding consolidation are

There exit a high degree of calculated risk taking to tap opportunities including the intention of come the way of business, but there is risk avoidance in Nigeria business and where risk is low, development is also low and industrial advancement becomes virtually static.

Consolidation could be a very expensive venture in terms of funds required to prosecute it successfully.

Corrupt practices at broadcast and private sector levels are another impediment. This need to be discouraged and incidence of corrupt practices must be severely punished since consolidation deals require confidence and entrust to promote consummation.

Nigeria suffers anaemically from be deficient in of information which may unfortunately impede noteworthy leaps in business combinations

1.2     OBJECTIVE OF THE STUDY

The fundamental objectives of this study are

To assess the proposition of consolidation on the banking industry
To examine the impact of consolidation on the Nigeria banks.
To highlight possible challenges posed by the policy of bank consolidation
Assess Nigeria banks before consolidation
Identify the benefits of bank consolidation
Evaluate the prospect of banks after consolidation
Assess the proposition of consolidation on banks in Nigeria

1.3    SIGNIFICANCT OF THE STUDY

The significance of this study is to enlarge to the general body of knowledge, enlighten the general broadcast on the effect of bank consolidation on the performance of banks in Nigeria. And also clarify the challenges of bank consolidation. This research bring about would also establish the fact including the intention of consolidation (merger and acquisition) is a veritable means for fostering banking growth.

1.4    SCOPES AND LIMITATION OF STUDY

The scope of this study is to know the challenges of bank consolidation.

Due to the financial constraint coupled including available, the research will make use of available materials in the Securities and Exchange Commission’s library. Central Bank of Nigeria(CBN) and Association of Issuing Houses of Nigeria’s library where books relevant to the research topic will be consulted and the internet.

1.5     RESEARCH QUESTION

The question on this research bring about is

Is there noteworthy relationship between capitalisation and liquidity ratio of banks in Nigeria?
Is there noteworthy relationship between capitalisation and loan to deposit ratio?

1.6     RESEARCH HYPOTHESES

Baridam (2001) defined hypotheses as a tentative answer to the problem. The following hypotheses will be formulated from the objectives and will be verified in the course of this research bring about and noted as null from guide us in finding the solution to the problem including the intention of is induced in this research bring about.

HO:   There is no noteworthy relationship between capitalisation and liquidity ratio of banks in Nigeria

HO:   There is no noteworthy relationship between capitalisation and loan to deposit ratio?

1.7     DEFINATION OF TERMS

Bank Re-capitalization: It is the act of supplying lingering-term funds of the owners of the bank to meet the requirement of monetary authority. Osiegbu (2005).
Consolidation: It is the reduction in the number of banks and other deposit taking institution including a simultaneous increase in the size and concentration of the consolidation entities in the sector (BIS, 2001:2)
Merger: It is the combination of two or more separate firms into a single firm
Acquisition: It is where a company takes over the controlling shareholding interest of another company

1.8     ORGANIZATION OF THE STUDY

The research bring about will be made up of five chapters as follows:

CHAPTER ONE: This consists of the introduction, statement of the problem, purpose of the study, research questions, research hypothesis, significance of the study, limitations of the study, organization of the study and definition of terms.

CHAPTER TWO: This part consists of reviews of relevant literature of renowned authors in the field of this study.

CHAPTER THREE: This part entails the methodology selected by the researcher of the study. It entails research design, sample procedure, data collection, operational measure of the variables, and data analysis technique.

CHAPTER FOUR: This consists of a vivid presentation and analysis of data collected from relevant sources for the study.

CHAPTER FIVE: This is the last part of the bring about and it consists of discussion, conclusion and recommendations made by the researcher.

CHAPTER TWO

2.0    THE CONCEPT OF CAPITAL BASE

The contemporary call for recapitalization in the banking industry has raised much argument among the bank regulators, promoters and depositors as if shoring up of bank’s capital base is a new phenomenon in Nigeria. Historically, the failure of pioneer z1930’s and 1940’s brought about the enactment of banking ordinance of 1952. Banking ordinance of 1952 prescribed an operating licence and emphasized on minimum equity capital for all banks (Onoh, 2002: 321). Since then, raising of bank capital has become the hallmark response policy of the Nigerian monetary authorities.

Capitalization is an vital component of reforms in the banking industry, owing to the fact including the intention of a bank including a strong capital base has the ability to absorb losses arising from non-performing liabilities (NPL). Attaining capitalization requirement is achieved through consolidation, convergence as well as the capital promote. Thus, banking reforms are primarily driven by the need to achieve the objectives of consolidation, competition and convergence. (Deccan Herald,2004), in the financial architecture.

2.1      THE POSITION OF THE BANKING SECTOR BEFORE

CONSOLIDATION

There was existence of eighty-nine (89) banks predominantly in the urban centres as at June 2004, Characterized by structural and operational weakness of low capital base. Dominance of a few banks insolvency, and illiquidity over dependence on broadcast sector deposits, and foreign exchange, trading. Poor asset quality, weak co-operate power, a system including low depositor confidence. Banks including the intention of could not effectively support the real sector of the economy at 24 percent of GDP compared to African average of 87 and 272 percent for developed countries.

Furthermore the thought of consolidation amongst others includes becoming Africa’s financial centre and CBN as one of the best in the world. Within ten years, Nigerian bank(s) must be among the top 50 0f the 100 banks in the world. Facilitate evolution of a strong of a save and strong banking system. Improve transparency and answerability in the sector. Drive down the cost structure of banks and make them more competitive and development oriented. A new banking system including the intention of depositors can entrust and investors can rely upon to usher in a new economy.

2.1.1 THE REFORM AGENDA FOR CONSOLIDATION

Recapitalization of banks to 25 billion naira share holders fund by December 31 2005. Zero tolerance on misreporting and infarctions.
Stricter enforcement of corporate power principles.
Policy framework on Risk Management systems.
Strengthening risk management systems in banks.
Risk based supervision.
Payment system Reforms.
Closer collaboration including the Economic and Financial Crimes Commission (EFCC) in the establishment of the Financial Intelligence Unit (FIU) and enforcement of anti money laundering measures.
Approximately constituent of reform, to a strengthened, Complete, banks.

2.2    BENEFITS OF CONSOLIDATION

The consolidation program has fundamentally changed the nature of competition, in the banking industry, in Nigeria. Through the new minimum capital requirement, the number of banks in the country has been successfully reduced from eighty-nine to twenty-five. The policy has also effectively raised entry barriers for those wishing to start banking business (Osubo, 2006.5).

There are many benefits attached to the consolidation of the Nigerian banking sector, and the Nigerian banks stand to gain a lot from them. Approximately of the benefits are

Emergence of 25 banks through consolidation (compare to 89 banks before consolidation). Successful banks accounted for about 93.5% of aggregate deposit liabilities
More effective supervision focus on fewer (25) banks rather than 89 mostly sick banks. No more wholly regionally/ ethnically based banks
Strong capital is a basic indication of solvency, and it will take a while along including careless risk for any of  the newly capitalized banks to walk its way into insolvency
The consolidation provides a vehicle for taking out the weak banks in the system in an orderly manner
The consolidation will improve profitability and operational efficiency of banks.
The expansion of the shareholding base of Nigeria banks, thus eliminating the phenomenon of ‘family banks’ and the tendency for poor corporate power.
The Nigeria economy will be stronger and better capitalized to finance the lingering term development projects in different spheres of the economy and businesses.
Banks will also invest in infrastructure development, excellent business enterprises and moreover, support entrepreneurship.
Banks will invest heavily in training and development of manpower. (Osubo, 2005).
Enhanced liquidity and capitalisation of stock promote
Aggregate capitalisation of banks as a share capitalisation rose from 24% to 38%.

2.4     THE CONCEPT OF CONSOLIDATION

Consolidation is view as the reduction in the number of banks and other deposit taking institution including a simultaneous increase in the size and concentration of the consolidation entities in the sector (BIS, 2001:2). It is mostly motivated by technology innovation, deregulation of financial services, enhancing intermediation and increased emphasis on shareholder regard, privatization and international competition (Berger et al, 1991; De Nicole etal….2003: IMF, 2001).

The process of consolidation has been argued to enhance bank efficiency through cost reduction revenue in the lingering run. It also reduces industry’s risk by elimination weaker banks and acquiring the smaller ones by larger and stronger banks as well as makes opportunities for greater diversification and financial intermediation.

The pattern of banking system consolidation could be view in two different perspectives, explicitly; promote-driven and government-led consolidation. The promote-driven consolidation which is more pronounced in the developed countries sees consolidation as a way of broadening competitiveness including added comparative advantage in the global context and eliminating excess capacity more efficiently than bankruptcy or other means of exit.

On the other hand, government-led consolidation stems from the need to resolve problem of financial distress in order to avoid systematic crises as well as to restrict inefficient banks (Ajayi, 2005:2). One of the general effects of consolidation is to the reduction in the number of players, moving the industry more toward an oligopolistic promote (Adedipe, 2007:37).

2.4     THE REASON FOR CONSOLIDATION

The inability of the Nigeria banking system to voluntarily embark on consolidation in line including global trend has necessitated the need to consider the adoption of appropriate legal and supervisory framework as well as a comprehensive incentive package to facilitate to consolidation in the banking industry, both as a crisis resolution option and to promote reliability, stability and efficiency of the system by the apex regulatory body of the banks in Nigeria ( Soludo, 2004:4).

The major objective of the banking system is to ensure fee stability and facilitate rapid economic development. Regrettably, these objectives have remained largely unattained in Nigeria as a result of approximately deficiencies.

These include:

Technological drive: A bank desirous of enhancing its operations but constrained by its inability to easily access the needed technology may be driven into merging including another which has the technological advantage over it
Desire for growth: A merger arrangement may be entered into by a bank including a view to harnessing the other bank to achieve the desire growth.
Poor rating of number of banks: though the banking system in Nigeria is, on the average, rated satisfactory, a detailed analysis of the condition of individual banks, as at December, 2004, showed including the intention of no bank was rated very sound only 10 were adjudged sound 51 satisfactory, 61 marginal and 10 unsound. (Imala; 2005 pp:27).
Low capital Base: The average capital base of Nigeria banks is US$10milion, which is very low compare to including the intention of of banks in other developing countries like Malaysia where the capital base of the smallest bank is US$526million. Also the aggregate capitalisation if the Nigeria banking system at 311million naira (US$2.4million) is grossly low in relation to the size of the Nigeria economy and in relation to the capital base of US$688billion for a single banking group in France US$541billion for a bank in Germany. (CBN 2005: 17)
Stock Exchange Quotation: Business combination could be motivated by the desire for stock exchange listing. In this case, a bank unable to meet the requirement of the stock exchange, but desirous of broadcast quotation may integrate including another bank in order to grasp its goal.
Increased Promote Share: Consolidation (Mergers and Acquisition) may be compelled by the desire banks including the intention of have similar line of product to enlarge its promote share after the merger.

In addition to the above inadequacies, the Nigeria banking system suffers the following operational problems:

Weak corporate power, prove in inaccurate and non-                       falling in line including regulatory requirement, declining ethics and yucky insider abuse resulting in huge non-performing insider related credits. Over-dependence on broadcast sector deposits and foreign exchange trading and neglect of small and medium scale private savers. (Imala; 2005:27)

2.5.              BANK CONSOLIDATION THROUGH MERGER AND                         ACQUISITION

Consolidation is achieved through merger and acquisition. A merger is the combination of two or more separate firms into a single firm. The firm including the intention of consequences from the process could take any of the following identities: Acquirer target or new identity.

Acquisition on the other hand, takes place where a company takes over the controlling shareholding interest of another company. Usually, at the end of the process, there exist two separate entities or companies. The target company becomes any a division or a subsidiary of the acquiring company (Pandey, 1997:885).

While consolidation involves merger and acquisition of banks, convergence involves the consolidation of banking and other types of financial services like securities and insurance (FRBSF Economic letter, 1998).

Anecdotal prove indicates including the intention of the commonest form of mergers and acquisitions found in the financial services industry involves domestic firms competing in the same segment (for instance, bank to bank). The second most common type of merger and acquisition transactions involves domestic firms in different segments (e.g. bank-insurance firms). Cross-border merger and acquisition are less frequents particularly those involving firms in different industry segments (Roger Ferguson Jr., 2002).

2.5.1                   APPROVAL UNDER MERGER AND ACQUISITION

Before any bank can be said to consolidate through merger and acquisition in the Nigeria industry, it must initially seek and obtain the approval of the following regulatory and supervisory authorities in the industry. They include the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), Nigeria Stock Exchange (NSE) and the Corporate Affairs Commission (CAC).(CBN 2004).

2.5.2        PROCEDURES FOR OBTAINING APPROVAL FOR MERGERS AND ACQUISITIONS

The Company and Allied Matter Act (CAMA 1990) and The Investments and Securities Act (ISA 1999) provide the fundamental legal provision for completing Merger and Acquisitions in Nigeria. This provision vested the power to review and produce approval to Securities and Exchange Commission (SEC). Before granting its approval, SEC considers the effect of the proposed transaction on the competitive environment, including a view to ensure including the intention of the transaction does not restrain competition or make a monopoly. The procedure or process for obtaining approval for mergers and acquisitions entail four (4) basic steps:

Filling a Pre-Merger/Acquisition notification
Filling a formal application for approval of the

Proposed Merger/Acquisition.

Hold a Court Order Meetings
Complying including post-approval requirements

2.6    THE ROLE OF SEC, CBN, NSE, AND CAC AS REGULATORY AUTHORITIES IN MERGERS AND ACQUISITIONS

Securities and Exchange Commission (SEC):

The Nigeria law provides including the intention of every merger, acquisition or business combination between or among companies shall be subject to the prior review and approval of the Security and Exchange Commission (SEC), (ISA 1999:599(2). Subsection 3 of the said part 99 provides including the intention of the commission shall consent any application made under including the intention of part if and if only the commission finds including the intention of “it is not likely to cause a significant competition or trend to make a monopoly in any line of business enterprise” or “use of such shares by voting or granting of proxies”. It must be noted including the intention of both mergers and acquisitions requires SEC approval on monopoly. Worthy of annotation is including the intention of monopoly consideration is a pre-merger issue. There is no need to commerce the merger process if at the end or in the middle of the process SEC will refuse approval on the basis including the intention of the combination will inhibit competition. It is therefore vital to seek a pre-merger approval must SEC. The application for pre-merger approval must include information on history and business of the combing companies as well as their promote.

Apart from pre-merger approval on issues relating to monopoly, SEC has to consent the scheme after a court session and holding of court- sanctioned meetings. The role of SEC in this regard is practically different from the pre-merger approval. At this stages SEC will ply its traditional role of regulation to ensure falling in line by the parties including disclosure and excellent corporate power requirement of the law. The role of SEC is not to be a participant but to make the enabling environment for parties to play in affair promote situation.

Central Bank of Nigeria (CBN) Approval:

Banks and other financial institutions Act (Bofid) 1991 and the CBN Act of 1991, the CBN has enormous powers to regulate banks including approval of consolidation of banks and changes in the structure and management of any bank. It follows including the intention of in view of the world powers of the CBN, it is advisable including the intention of pre-merger approval of CBN be obtained prior to initiation of the process consolidation. The pre-merger approval for merger and acquisition would be required to undergo three stages of approval explicitly, pre-merger consent from the CBN, approval – in- principle and final approval. Also, it is imperative including the intention of CBN approval be sought and obtained to the scheme document, shareholders agreement, new message and articles of association implementing shareholders agreements, if any.

During implementation process, every structural management action would be subject to CBN approval. These would include reorganization, personnel rationalization, name approval, branch rationalization, have control over office etc.

Nigeria Stock Exchange (NSE) Approval:

The approval of the Nigeria stock exchange is necessary if the merged company is to be a broadcast restricted liability company and desires listing on the exchange or approximately of the merging companies are listed on the exchange. During the merger period the NSE is like place of listed parties to the merger or technological suspension to prevent unfair trading and protect those companies.

CORPORATE AFFAIRS COMMISSION (CAC) APPROVAL:

Essentially from the legal point of view the CAC has merely a ministerial role to play in mergers and acquisitions.

It is the custodian of company documents; therefore most of the processes end up including the CAC for proper custody. This is done through statutory returns. Certificates of incorporation will ultimately be returned and a new one issued for the merged company. The share capital may have to be increased substantially. Also, returns of allotment will have to be filed. Approximately of these processes occupy payment of significant sums in stamp duties and filling fees. It is therefore imperative including the intention of these costs be anticipated.

Although the CAC has a purely ministerial role in regulation of mergers and acquisitions, improvement in its technology and approximately service delivery means including the intention of, it is more able to track defaulting companies and this can gradual down the process for companies involved in the merger process whose returns at CAC is not up to date. Defaulting companies may have to pay significant penalties.

2.7    CHALLENGES OF BANK CONSOLIDATION

The challenges identified in this research bring about cut across the banks, their shareholders, bank employees and other stakeholders in the banking industry.

It is an established fact including the intention of the route to improving efficiency in any industry is to foster competition among the operators. This is evident in two vital growth sectors of the Nigeria economy- aviation and telecommunications over the last one decade (Adedipe 2005:37). A major challenge of bank consolidation is how to foster competition including fewer mega banks.

Certainly, fewer cannot be more competitive. There is but, the other feature to the argument, which considers the number and spread of bank branches. The fewer banks are likely to be pressured to expand further, seeking business opportunities through aggressive branding to hitherto unexplored territories. (Moon, 1998).

There is ample prove including the intention of this is the direction including the intention of the emerging banks in Nigeria are likely to follow, vacant by the indications in their capital raising information message. International prove in bank consolidation also confirms this except including the intention of it is more in the context of cross boarder acquisitions (Hughes, Lang, Master and Moon, 1998).

One of the supposed benefits of consolidation (Larger Banks) is indeed and efficiency challenge. The argument has been including the intention of larger banks might not necessarily be filter or more efficient, since they have no incentive to improve efficiency within the restricted competitive field. Observers of Nigerian banking have noted including the intention of the huge banks (perhaps since of the increase in the number of customers) have slipped back to their erstwhile habits before the advent of the new generation banks. Available, empirical evidences from Hughes et al (1998).

Another major challenge of consolidation is capacity building for risk management for both the regulators and operators. Both constituencies of the bank system need to enhance their risk management skills and indeed buy new ones, covering the three plant of risk recollection, evaluation and monitoring (Adepide, 2005:41).

2.8     THE IMPLICATION OF CONSOLIDATION ON THE  BANKING INDUSTRY

The directive by the Central Bank including the intention of, banks must raise their capital base to the tune of N25 billion several implications for both the banking industry and the Nigerian economy at large. These implications are as follows: including respect to the banking industry, the implications can be categorized into two parts explicitly; brand and structural implications.

2.8.1 BRAND IMPLICATION: Including regards to branch implications, the new entities including the intention of will come from the dust of consolidation will need to deal including brand-related issued such as:

There will be a change of name if two or more banks come together and choose not to adopt any of the participating bank name.
The logos which were formally used by all of these banks will be dropped and another one adopted.
There will also be the evolution of a new brand culture for the emerging banks after consolidation.
The brand message of the consolidated banks will also be changed.
The place of information communication technology (ICT) in the bank will be changed, including the intention of is, banks software as the new banks will go for the best to meet up customers demand.

2.8.2 STRUCTURE IMPLICATION: The recapitalization of banks will leave in its wake, a number of structural issues which will have direct impact on personnel, customers and the entire banking sector. They include:

The reduction in the number of banks in the country
The closure of many small banks, mainly those in the rural areas including poor capital deposit.
Increased competition due to better incentives and rendering of banks services.
Acquisition digestion issues which will include loss of jobs, consolidation of branch locations and tackling of inefficiencies and bureaucracies. Reconstitution of management and board of the banks.

Source: THE NIGERIA BUSINESS INFORMATION

2.9    PROSPECT OF BANKS AFTER CONSOLIDATION

The initial broadcast offering by banks through the capital promote when concluded is likely to increase the level of financial deepening as evidenced in the surge in the volume and regard of trading in stock promote.
The reform in the banking industry has been able to attract more foreign investment inflow, mainly in the area of portfolio investment; this development if sustained will boost the level of economic activity mainly toward non oil sector.
The consolidation of banks is likely to attract a noteworthy level of foreign banks entrance into Nigeria which will become a feature in the industry over time. This will bring about more confidence by the international community of the banking sector thereby attracting more foreign investment into the country. As the level of financial intermediation increase, interest rate is likely to reduction and increase lending to the real sector including the intention of will generate employment and booster growth.

CHAPTER THREE

3.0 METHODOLOGY

The initially two chapters of this research bring about have dealt extensively including the introduction and review of the literature on the subject and matter. It is currently necessary to describe how the research is to be carried out.

Methodology deals including the methods and procedures of carrying out the study. It includes research design, sample procedure, questionnaire design, data collection and data analysis technique.

3.1  RESEARCH DESIGN

It is the form bring about for a study including the intention of is used as a guide in collecting and analyzing data. This research will make use of the descriptive research design while investigating the research topic. ‘THE EFFECT OF BANK CONSOLIDATION ON THE PERFORMANCE OF BANKS IN NIGERIA’.

Also it is refer to a set of instruction for making something which leaves the details to be worked out. According to Okwandu (2004) design is aterm used to describe a number of choice, which need to be taken regarding the collection of data before ever the data are collected.

3.2 DATA COLLECTION METHOD

Data collection entails obtaining relevant information regarding the major thought of the research questions/hypothesis of the study for the purpose of confirming whether they are right or not. In the view of Olaitain et al (2000), it is the systematic way of obtaining information, fact prove, or observation toward answering specific research question or testing stated hypothesis of a research. Basically there are two types of data. These are: fundamental and secondary data. Fundamental data are data collected from its original source or for a specific purpose. While secondary data are collected from pre-unfilled ones. Secondary data is used in this study. The secondary information was gotten from CBN statistical bulletin and annual report.

3.3      OPERATIONAL MEASURES OF THE VARIABLES

In the research bring about, the independent and dependent variable are fit to an equation called a regression equation which the data would express the relationship between variables. The simple linear regression analysis is used to analyze the stated hypothesis.

In hypothesis one, the functional relationship was postulated between (capital base) consolidations (X) and (performance) liquidity ratio of Nigerian banks (Y).
The relationship in hypothesis two is between (capital base) consolidation (X) and (performance) loan to deposit ratio (Y).

To express the model of simple linear regression in equation form is:

Y   =    a + bx

Where   Y   =   dependent variable

a   =   intercept parameter (where the regression surface crosses the y       axis)

b    =    slope of the regression line (it is the rate of change in Y including respect to X)

x    =   Independent variable

3.3     DATA ANALYSIS TECHNIQUE

In this study, parametric tests will be used. The statistical technique including the intention of will be used is the coefficient of correlation, which is often referred to as the Pearson Product Moment Correlation Coefficient; the coefficient of correlation will be calculated using the following formula:

r  =                        n() – ()

The correlation coefficient tells us the nature of the relationship between the dependent and independent variable.

It was originated by Karl Pearson about 1900; the coefficient of correlation describes the strength of the relationship between two sets of valuables. It can assume any regard from -1.00 to +1.00 inclusive. A correlation of -1.00 to +1.00 indicates perfect correlation.

If there is unquestionably no relationship between the two sets of valuables Pearson r will be zero. A coefficient of correlation r close to zero shows including the intention of the relationship is practically weak.

Correlation coefficient can be defined as an often used statistics including the intention of not only provides a measure of how unsystematic variables are associated in a sample, but also has properties including the intention of closely relate it to straight its regression. It could also be defined as a statistical technique including the intention of determines the strength of linear relationship between two variables.

Furthermore, it can be stated as a measure of strength of the linear relationship between two sets of variables.

The coefficient of correlation does not tell us if the relationship is indeed noteworthy. To do this the researcher uses the +- test to test if the relationship is noteworthy. The formula for +- test is:

t  =        including n – 2 degrees of freedom.

We will use the two tailed test at 0.05 level of significance. The 0.05 level of significance for rejection of null hypothesis, means a researcher is willing to accept the probability including the intention of chances are less than five in one hundred, including the intention of the observed difference is due to sampling error. Therefore, the probability of committing a type one error is less than 0.05.