Project Proposal Essay Example | Topics and Well Written Essays - 1000 words - 1

Project Proposal - Essay Example To help strengthen the players in the banking sector in Nigeria and to ensure longevity and shareholders’ returns in the long run, the consolidation of banks was enforced by the Central Bank of Nigeria. The banks would either have to raise their capital base to N25 billion or face liquidation and quit the industry (Upaka, Akpata & Olasope, 2005). The purpose of the reforms was to reduce poverty and generate employment while leading to wealth creation. This was expected to lead to GDP growth over a period of time. Many of the small banks were plagued with low capital base and weak corporate governance. Consolidation of the banking system was to ensure a diversified, strong and reliable banking sector, ensure safety of depositor’s money, play active developmental roles in the country’s economy and make Nigerian banks competent and competitive players in the global financial system (Poyi, 2006). This would lead to diversification and emergence of specialized banks. The lending rates of the banks were very high and lending was concentrated in the short term due to lack of long term savings. The impact of the consolidation of the banks was felt in different sectors but there is not much literature available on the after-effects. The aim of this research is: Theory suggests that consolidation of banks could potentially increase the bank size which could in turn increase the bank returns through revenue and cost efficiency gains (Ajayi, 2005). It could also reduce industry risks through elimination of weak banks. This helps to eliminate the weak banks. The top ten banks account for nearly and account for more than 50% of the total assets. The small banking sector suffers from concentration of risks. They can provide fewer services and the costs for providing such services are high. Because of lack of effective competition, they are unable to exploit economies of scale. Consolidation became essential because there was over