The consolidation of banks has been the major policy instrument being adopted in correcting deficiencies and under-performance in the financial sector. The economic rationale for domestic consolidation is indisputable. An early perception of consolidation in banking industry was that makes more cost efficient because larger banks can eliminate excess capacity in areas like data processing, personnel, marketing, or overlapping branch networks.
Cost efficiency also could increase if more efficient banks acquired less efficient ones. Efficiency in banking raised doubts about the extent of overcapacity, it however did point to considerable potential for improvement in cost efficiency through mergers and acquisition.
The Nigerian banking industry has witnessed and is still witnessing revolutionary metamorphosis in recent years as a result of the restructuring programmes channeled towards resolving the existing problems of the industry by the apex bank.
Consolidation is viewed as the reduction in the number of banks and other deposit taking institutions with a simultaneous increase in size and concentration of the consolidation entities in the sector. The consolidation reform is consistently predicted to engender some positive changes in the Nigerian banking industry.
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Therefore, it hopes to place the banking industry in a better stead to compete at the global level, more so that national barriers have been dismantled by Information and Communication Technology (ICT). It also hopes to equip the Nigeria banking industry to finance the key sectors that will foster growth in the economy, reduce unbridled competition among banks and over dependence on government and interbank funds.
the driving forces in bank consolidation include better risk control through the creation of critical mass and economies of scale, advancement of marketing and product initiatives, improvements in overall credit risk and technology exploitation. These drivers have led to improved operational efficiencies and larger and better capitalized institutions. The results of this policy are neither here nor there contrary to the policy expectation. However, the most difficult aspect of consolidation is the ones induced by government through mergers and acquisition.
CONSOLIDATION
To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company.
Consolidation is a type of merger in which two or more companies create an entirely new corporate entity and transfer all their assets and liabilities to the new entity. The former companies may continue to exist on paper, but they have no assets or liabilities.
Bank consolidation is the process by which one banking company takes over or merges with another. This convergence leads to a potential expansion for the consolidating banking institution.
REASONS FOR BANK CONSOLIDATION
Banks consolidate foe son many reasons however, one of the reasons for banks to consolidate is to alleviate competing institutions. Consolidation may also occur when a banking house wants to gain domestic or international capital power. The larger a company is the more potential it has to compete with other mega banks. Another motivation for banks to consolidate is the ability for firms to expand their providing services while decreasing the cost of operating two institutions.
BANK OPERATIONAL EFFICIENCY
Operational efficiency is connected with diverse aspects of its operations, its financial soundness, its profitability, and quality services to customers. The word efficiency is a combination of growth & performance, productivity, profitability, and technical efficiency.
Operational efficiency‘refers to the efficient utilization of human and material resources or the efficient use of people, machines, tools and equipment, materials funds. Better utilization of any or a combination of these, can increase output of goods and services, and reduce costs.
Operational efficiency is also the tactical planning of an organization to keep a healthy balance between cost and productivity. It identifies the wasteful processes that contribute to drainage of resources and organizational profits. It deals with minimizing waste and maximizing the benefits of resource to provide better services to the customers. To face tough competition lowering costs is a best option as internal wastage contributes to enhanced cost. Any input that is not processed through system into useful output is waste. It means producing more goods and services with no greater use of resources or maintaining the same level of production using fewer resources.
However, the efficiency of banks is directly linked to the productivity of the economy. Without a sound and efficiently functioning banking system, the economy cannot function smoothly and efficiently. When banking system fails, the whole of a nation‘s payment system is in jeopardy.
More so, the efficient banks are better able to compete because of their lower operational costs and can steal business away from less efficient banks. In sum, the relative efficiency of banks is always a matter of serious interest to the regulators, customers, stakeholders, and managers because efficiency is a broader concept; it involves optimally choosing the levels, and mixes of inputs and outputs.
HOW CONSOLIDATION WILL IMPACT ON BANK OPERATIONAL EFFICIENCY
The basic aim of a bank’s management is to achieve a profit, as the essential requirement for conducting any business. The consolidation of banks has been the major policy instrument being adopted in correcting deficiencies in the financial sector. The economic rationale for domestic consolidation is indisputable. An early view of consolidation in banking was that it makes banking more cost efficient because larger banks can eliminate excess capacity in areas like data processing, personnel, marketing, or overlapping branch networks. Cost efficiency also could increase if more efficient banks acquired less efficient ones.
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Each bank has its own benefits in the pursuit of performance goals including increasing growth, profitability, or maximum stock value. However, there are also important operating efficiency goals to pursue in order to obtain power in the market. These serve to give banks an increased control over prices and customer relations. Operating efficiency also results in modest rewards for shareholders.
CONCLUSION
In conclusion, consolidation as a policy did not improve the performance of Nigerian banks. As a result of this, it is recommended that the management of Nigerian banks should improve their total asset turnover and diversify in such a way that they can generate more income on their assets. Also consolidation of banks should be looked from the angle of profitability by taking consideration of all angles of economy before setting up the minimum capital for the banks in order to make significant profit