THE EFFECT OF BANKING CONSOLIDATION ON THE ACTIVITIES OF INSURANCE INDUSTRY IN NIGERIA (A CASE STUDY OF AILCO PLC)
The effect of Banking consolidation on the activities of insurance industry in Nigeria (A case study of AILCO Plc) The consolidation experience of the Nigeria banking sector commended as a result of the monumental reform of the banking system which started on July 6, 2004 at the 23rd meeting held at the Central Bank of Nigeria headquarter when the newly appointed governor of the Central banking shared his preliminary concerning the reform of the Nigeria banking sector (Ogowewo and Uche 2006). The objectives of the study are to enumerate the expected impact of bank consolidation on insurance industry, to appraise the impact of bank consolidation in the rural sector of Nigeria economy. The significance of the study will reveal the reasons and importance of bank consolidation on the growth and development of insurance business in the economy, it will serve as a data for researchers that will carryout related research studies in the future. The researcher used both the primary and secondary data in gathering information for the study. In conclusion bank consolidation has significantly affected insurance business in Nigeria due to the recapitalization exercise that warranted the life assurance business to pay a minimum capital based of
N25billion, while general insurance was N3billion. Thus the recapitalization exercise reduced insurance business in Nigeria into a total of 49 insurance companies.
1.1 BACKGROUND OF THE STUDY
The consolidation experience of the Nigeria banking sector commended as a result of the monumental reform of the banking system which started on July 6, 2004 at the 23rd meeting of the Nigerian bankers committee meeting held at the Central Bank of Nigeria shared his preliminary though concerning the reform of the Nigerian banking sector (Ogowewo and Uche, 2006). The ostentations reasons for the reform according to Soludo (2005) were to consolidate, deepen and enhance financial sector stability and competitiveness. To end a 13 point reform agenda for the banking sector was rolled out on July 6, 2004 with a terminal data of December 31, 2005 barely 18 months. The consolidation exercise having been completed with twenty five (25) banks emerging/form seventy five banks consolidating and thirteen (13) banks are not being able to survive the exercise (CBN 2006) This resulted to the mergence of the much taunted mega bank that are suppose to help facilitate economic growth in Nigeria.
The Central Bank of Nigeria (CBN) increased the minimum capital base for all universal bank to N25 billion in July 2004. This was an effort to strategically place the nation banking system in regional international convex and provide soundness, stability and enhance efficiency of the system. This led to merges and acquisition. Within the banking industry and thereby restructuring the entire system. The aim of the consolidation exercise among others was to groom and transform the bank into institution that investors can rely on, and depositors can trust, play development roles in the nations economy, to eliminate corruption and enhance transparency. It is also expected that the reform will overtime, down size the cost structure of the banks and guarantee higher returns to the shareholder and stakeholders of the banking industry. The consolidation banking system no doubt poses some challenges to both the banking institution as well as the regulatory authorities. This is because the banking industry becomes more concentrated as a result of consolidation and larger institutions also are more complex and tend to deal in sophisticated financial products. This makes them pose greater challenges in case of any failure.