ACCOUNTING ISSUES IN BANK MERGERS/ACQUISITION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The banking sector is the driving force of the the economic growth in most economic of the world (soludo 2004). The financial intermediation, banks facilitate capital formation and promote economic growth by facilitating capital formation and promoting economic growth in a sound manner.

Thus, with globalization and economic liberalization for competitiveness in the global market Nigeria must make radical choices in the match towards economic growth and development one of such radical choices was the mandate given to all banks in Nigeria on 6th July 2004, by the post governor of the central banks of Nigeria mandating them to share – up their capital base to N25 billion by December, 2005 (Jumbo 2006).

It was against this background that the C.B.N, in it’s regulatory function, directed the bank in Nigeria to consolidate through mergers and outright acquisitions or take overs (Jombo, 2006)soludo (2006:8) notes that twenty five banks emerged from seventy five banks out of a total of eight – nine banks existed as at June 2004. While fourteen banks were classified as sick having failed to meet the requirement or the re-capitalization conditions the successful banks accounted for 93.5% of the deposit liabilities of the banking system of the deposit liabilities of the banking system.

According to Akinsulire (2000), long (2005) and Ekungba (2005), this is business combination which may take forms of mergers, acquisitions and takeover as important features of corporate structural changes they have played and important role in the external growth of a number of leading companies of the world (long: 2006).

1.2 STATEMENT OF THE PROBLEMS

There are challenges facing the new banks and the regulatory authorities. The challenges ranges from reform to depositor of failed banks and information technology and of course accounting challenges on the issues of the fourteen banks that failed to recapitalize at the total of N177 billion of depositors money trapped in their vaults liquidation of the banks that failed to re-capitalization is another problems resulting from the re-capitalization. The NDIC is yet to obtain a court order approving the liquidation of most failed banks while some of the banks have taken the CBN to court to challenge their liquidation (long:2005).

Apart from administrative problem such as the location of the head office and the placement of bank staff and managers, there are other accounting issues which the banks are still finding it difficult to resolve Lamikanra (2005) mention the problems to include harmonization of financial year ends, treatment of reserves and issuing of shares.

1.3 OBJECTIVES/PURPOSE OF THE STUDY

The objectives/purpose of this study includes the following:

(i) To ascertain the effects of the merger/acquisition of banks on the customers, shareholders etc

(ii) To identify the accounting problems

(iii) Making recommendings.

(iv) Diversification/Integration: it could be vertical, resulting in backward or forward integration to control channels of raw  material supply or distributions similarly, totally unrelated activities can be merged to form conglomerates, which diversity the risk o individual industry to reduce the overall risk of the surviving companies earnings.

(v) Increase in the market share: this involves merger of companies in the same industry to achieve critical economic size, entry into a new regional market or reduction of completion.

(vi) Acquisition of needed technology and management: Just like a company can acquire another gain instant access to a

new market so can merger and acquisition lead to acquisition of technology and managerial expertise available in another company.

1.4 RESEARCH QUESTION

In course of this study, the following research questions will be answered

(1) Define merges and Acquisitios?

(2) What are the forms of merges?

(3) Does relationship exist between mergers and acquisition in Nigeria?

(4) What are motivations for mergers and acquisition in Nigeria?

(5) Can mergers and acquisitions lead to acquisition of technology and managerial expertise available in another company?

(6) What are the reasons for mergers and acquisition?

1.5 STATEMENT OF HYPOTHESIS

The underlisted research hypothesis  will be tested in course of this study.

Ho: Merge/acquisition do not play a vital role in the banking industries.

Hi: Merger/acquisitions plays a vital role in the banking industries.

Ho: Merges do not affect acquisition.

Hi: Mergers relates to acquisition.

1.6 SIGNIFICANCE OF THE STUDY

The findings of this research study will definitely contribute to the stock of knowledge. Government policy makers and the board directors will find the result of this research work of almost relevant to their day to day decision making process.

However, students intending to carryout research studies in the field of mergers and acquisitions will also find it as useful materials as an aid.

1.7 SCOPE OF THE STUDY

This study would have covered the entire country but for the broadness as well as time and finance that would be required, the researcher and has limited, the scope of the study in terms of area of coverage is UBN and CTB limited.

The scope will further be restricted to the board of directors of the companies being combined as in the case of union bank Nigeria plc and cititrust bank limited, the respondents would be made up of the managing directors of the Union Bank Nigeria Plc an Citi Trust Bank Limited.

1.8 LIMITATION OF THE STUDY

According to Baridam (1990:27) every researcher study has certain limitations which fall short of ideas which the researcher has established or recognized. Given the critical and sensitive native of the topic under this study, the researcher encountered a number of problems, which hindered the research work paramount among these constraints is the time frame within which the work was expected to be completed. The time period of completion for the work was too small considering the fact that the topic covered bank mergers and acquisition.

However, the cost of embarking on this project work considering the volume of work involved also give it’s own constraint on the research work as the researcher was not financially buoyant enough to carry out all the investigation deem necessary to be carried out.

1.9 DEFINITIONS

Accounting: It is the recording, classifying and summarizing of financial transactions events in terms of money and reporting the result to management and other users of accounting information users of financial statement.

(2) Mergers: This is a re organization process involving the coming together of two or more banks where by a new bank with a new legal status (the successor bank) is created and the merged banks are simultaneously liquidated.

(3) Acquisition: Jennings (2002) defines acquisition as an act of acquiring effective control by one company over asset or management of another company without any combination of companies. Thus, in acquisition two or more companies may remain independent, separate legal entity, but there may be a change in control of companies.

(4) Issues: Is the circulating distributing publishing, and offering of an office or set of items, as stamps made available at one time by an official group or company like issue of shares.

(5) Bank: Is an establishment authorized by a government to accept deposit, pay interest, clear checks, make loans, act as an intermediary in financial transactions and provide other financial service to it’s customers.

(6) Bank Consolidation: This is a reduction in the number of banks and other deposit taking institutions with a simultaneous increase in sie and concentration of the remaining entities in the sector (Basu, etal 2004)

(7) Amalgamation: This refers to a situation whereby companies that exist separately under different ownership decides to combine and give birth to a new one.

(8) Liquidation: Is the winding up a company in other words the corporate life of the company is brought to an end.

(9) Monetary Items: These are units of currency held as well as assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

(10) Horizontal Mergers: These are two firms merged across similar products or services. It is often used as a way for a company to increase it’s market share by merging with a competing company.

(11) Conglomerate: These are two firms in completely different industries merged, such as a gas pipeline company merging with high technology company.