Economies of Scale: One of the major advantages of the banking sector consolidation that is often harped on is its potential for firms in the industry to enjoy economies of scale. In his maiden address to the Bankers Committee, the CBN Governor, Prof. Charles Soludo, posited that most banks in Nigeria have a capital base of less than US$10million or about N1.3billion and that the largest bank in Nigeria has a capital base of about US$298 million compared to US$526 million for the smallest bank in Malaysia. Without being dragged into the controversy of the choice of N 25 billion as the benchmark for the capitalization of banks or the appropriateness of the comparison between Nigeria and Malaysia, one obvious fact is that the small size of Nigerian banks, each with expansive headquarters, separate investments in software and hardware, coupled with the bunching of branches in a few commercial centers, resulted in heavy fixed costs and operating expenses, thereby giving rise to very high average cost for the industry. Another issue related to the small size of Nigerian banks is the high cost of intermediation epitomized by the wide spread between deposit and lending rates. It would be recalled that the desire of the government to have a single digit lending rate has remained a mirage due, mainly, to the high cost of intermediation.
Globally, size has become an ingredient for success. An enhanced capital-base, all things being equal, is expected to confer competitive edge on a bank. It would enable the bank acquire relevant technology, engage high quality personnel and absorb shock. It would also position the bank to offer better and value-added services while increasing its earning capacity. Furthermore, consolidation increases the potential of banks to compete effectively at the national, regional and global levels (An Eagle Eye View of Mergers and Acquisitions: A recipe for venture expansion Abdul waheed Dauda)
Last date updated on June, 2014