Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.13, 2015 147 Impact of Merger and Acquisition on the Growth of Nigerian Banking Industry Dr. Ogiji, Festus O. and Eze, Onyekachi Richard Department of Banking and Finance, Ebonyi State University, P.M.B 053 Abakaliki-Nigeria Abstract: The banking industry in Nigeria has long been experiencing one reform or the other since inception. These reforms were so, in order to put the sector, which is believed to be a stimulant of economic growth and development, in the right track financially. One of the reforms that is of much interest is the consolidation through mergers and acquisitions with particular reference to the 2004 – 2005 and 2011 – 2012 wave of mergers and acquisitions in the Nigerian banking industry. Although this reform brought with it some positive changes in the nature of improved economies of scales, financial stability and efficiency, certain adverse effects were observed. The aim of this work is to investigate the impact of merger and acquisition on the growth of Nigerian Economy using descriptive study and qualitative data. The paper found that there is long run impact of merger and acquisition on economic growth in Nigeria. The study also recommends that Policy makers should implement a law or statute that will protect the rights and interest of the employees during and after any event of mergers and acquisitions. Keywords: Merger, acquisition, economic growth, financial system, consolidation. Introduction In changing business, financial and economic environment. Corporate mergers, acquisition, takeover etc becomes inevitable. Globally such business combinations have involved various sizes of companies as well as assets and have cut across economic sectors. Banking reform in Nigeria has been an integral part of the country- wide economic reform program undertaken to reposition the Nigerian economy to achieve the objectives of sustained macroeconomic development stability. For the banking sector to be among global players in the international financial market, it must effectively perform its intermediation function (Alade, 2012). Consolidation is achieved through merger and acquisition. A merger is the combination of two or more separate firms into a single firm. The firm that results from the process could take any of the following identities: acquire target or new identity (Lekan, 2000). Acquisition on the other hand, takes place where a company takes over the controlling shareholding interest of another company. Usually, at the process, there exist two separate entities or companies. The target company becomes either a division or a subsidiary of the acquiring company (Pandey, 1997). The process of bank merger and acquisition has been argued to enhance bank efficiency through cost reduction in the long run. It also reduces industry’s risk by bigger and stronger banks as well as creates intermediation. The financial service industry is reconstructing and consolidating at an unprecedented rate around the global particularly in the USA, Western Europe and Asia (Osubo, 2006). Specifically in the period 1997-1998; 2003 bank merger and acquisition occurred in Western Europe, In 1998 a merger in finance resulted in a new bank with capital base of $686 billion, while merger in Germany in the same year created the second the second largest bank in Germany with a capital base of US$546b. In Japan, Bank merger has produced the new Tokoyo Mitsubishi bank over US$700b in assests. The banking industry is the most vibrant sector in the Nigeria economy. Historically, the industry has developed in four stages: the first stage can best be described as unguided, Laisez faire phase (1930-1959), during which poorly capitalized and unsupervised indigenous banks failed before their twentieth anniversary. The second stage was the control regime (1980-1985), during which the CBN ensured that only “Fit and proper” persons where granted licenses subject to a minimum paid-up capital. The third stage was the post SAP regime (1986-2004) during which the neo-liberal philosophy of “free entry” was overstretched and banking licenses were dispensed by the political authority on the basis of patronage. The emerging fourth stage is the era of consolidation with emphasis on recapitalization and proactive regulation base on prudential principles. The process of recapitalization and restructuring of Nigeria commercial banks has been gathering space since the decision was made by CBN on the recapitalization of Nigeria banks from #2b to #25b by December 31 st 2005. The scheme as confirmed by the CBN governor is subtle way to compel Nigeria banks to merge so as to strengthen in totality the Nigeria banking system through merge and acquisition. The process would further enable the banking sector to meet up with international standards.