European Journal of Social Sciences Volume 11, Number 3 (2009)

The Impact of the Banking Industry Recapitalization on Employment in Nigerian Banks

Umar Gunu Department of Business Adminisration University of Ilorin, Ilorin-Nigeria Abstract Banking Industry recapitalization was intended to improve so many indices in the Banking Industry. Some of the indices are affected were; Shareholders Fund, Total Assets, Number of Branches and Employment. The magnitude of improvement of the current indices and the former indices before recapitalization are not the same. The research sought to discern the nature of change in the indices after recapitalization. The objective of the research is to identify the extent of impact on employment of recapitalized banks shareholders fund, total assets, and number of branches. The research is an explanatory study that establishes causal relationship between employment and indices of recapitalization. The data used were secondary data. Simple percentages and multiple regression analysis were used to analyse the data. The study revealed that there was reduction in employment in the Banking Industry between 1999 and 2001. There was appreciable increase in employment in the Nigerian banking industry after the consolidation exercise from year 2006 up to 2008. Two Banks have 23.04 % of the total shareholders fund in the banking industry. 25% of banks in Nigeria had less 2% of total shareholders fund. 8.33% of banks in Nigeria had less than 1% of total shareholders fund. Other banks shareholders fund are between 2 % and 7%. 20.83% of Nigerian banks had less 2% of Total Assets in the banking industry. 8.33% of Nigerian banks had 20.35% of Total Assets. Other banks have between 2% to 8% of Total Assets. Results of multiple regression analysis revealed that shareholders fund, Total Assets and number of domestic branches caused 62.0% of employment in the banking industry. Shareholders fund and Total Assets were not significant variables that have linear relationship with employment in the Banking industry.

1.0. Introduction
The central bank of Nigerians resolve to carry out reforms in the banking sector was borne out of the past of the nations banking industry. Between 1994 and 2003 a space of nine years, no fewer than 36 banks in the country closed shops due to insolvency. In 1995 four banks were closed down. But 1998 may go down well in history as the saddest year for the banking industry as 26 banks closed shops that year. Three terminally ill banks also closed shops in 2000. In 2002 and 2003 at least a bank collapsed. The failed banks had two things in common small size and unethical practices. Of the 89 banks that were in existence as at July 2004, when the banking sector reforms were announced, no fewer than 11 banks were in distress. According to the CBN, between 69 and 79 of the banks were marginal or fringe players. Promotion in most of the banks in the pre-consolidation era was to a large extent dependent on the value of deposits a bank staff could mobilize. This gave rise to the emergency of unprofessional bankers in the top management levels. Due to cutthroat competition among banks, only the top 10 controlled 70% of the total assets of banks in the entire industry. They also controlled about 62.3% of 486

European Journal of Social Sciences Volume 11, Number 3 (2009) deposit liabilities and 86% share of the industrys savings deposit. Yet they could only give between 35 % credit to productive sector. Interestingly, after 18 months of racing to raise their capitalization, only two banksintercontinental Bank and United Bank for Africa, UBA had share holders funds in excess of N50 billion. This, the CBN said was far from making them mega banks. They were closely followed by first Bank which had N44.67 billion in shareholders funds, while about eight banks were in the N31 billion to N40 billion range. Industry analysts were of the view that banks of the future were to emerge from this group. As at the last week of December 2005, when the industry was awaiting the CBNs final pronouncement on the process, 25 banks had crossed the N25 billion target. These are banks that embraced the mergers and acquisition options as well as a few of those that were able to raise their capitalization alone. Prior to the re-capitalization process, only two banks in the country had shareholders funds in excess of N25 billion first Bank and Union Bank. But as the reality of the reforms stared the industry players in the face, many banks hurriedly signed memoranda of understanding to merge. Many others headed for capital market either to meet the new requirement or enhance their bargaining power for mergers and acquisitions. In the process of consolidation many bank CEOs and chairmen of boards lost their positions as a result of Merger and Acquisition. But more devastating has been the job losses across cadres in the industry. In many banks this has been done quietly, while in other banks, workers have been encouraged to resign with benefits. The governor of CBN had, at the beginning of the process admitted that there will be job losses but the question then is whether, on a net basis, there will be more job losses after the consolidation than would have occurred(Manukas 2006). The objective of the research is to identify the extent of impact on employment of recapitalized banks shareholders fund, total assets and number of branches.

2.0. Literature Review

Corporate level strategies are basically about decisions related to allocating resources among the different businesses of a firm, transferring resources from one set of businesses to others, and managing and nurturing a portfolio of businesses in such a way that the overall corporate objectives are achieved. Analysis based on business definition provides a set of strategic alternatives that an organization can consider (Kazmi, 2006).Strategic alternatives revolve around the question of whether to continue or change the business the enterprise is currently in or improve the efficiency and effectiveness with which the firm achieves its corporate objectives in its chosen business sector (Glueck and Jauch,1989). Accordingly, there are four grand strategic alternatives: Stability, growth/expansion, retrenchment, and any combination of these three. By far the most widely pursued corporate strategies are those designed to achieve growth in sales, assets, profits or some combination. Companies that do business in expanding industries must grow to survive. Continuing growth involves increasing sales and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits. A company can grow internally by expanding its operations both globally and domestically or it can grow externally through mergers, acquisitions and strategic alliance (Wheelen and Hunger 2008). A merger is a transaction involving two or more companies in which shares are exchange but in which only one company survives. Mergers usually occur between firms of somewhat similar size and are usually friendly. The resulting firm is likely to have a name derived from its composite firms. One example is the merging of Stanbic bank and IBTC bank to form StanbicIBTC bank plc. An acquisition is the purchase of a company that is completely absorbed as an operating subsidiary or division of the acquiring company. An example is UBAs acquisition of former Trade bank and city express bank. Acquisition usually occurs between firms of different sizes and can be either friendly or hostile (Wheelen and Hunger, 2008). 487

European Journal of Social Sciences Volume 11, Number 3 (2009) Ernst and Young (1995) identified four alternatives of acquisition: Financial, geographic, symbiotic, and absorption acquisitions. Financial acquisitions are companies bought into a holding company for the purpose of restructuring. The main objectives for the acquisition are the financial opportunities from cost eradication, cost reduction and improved efficiency. Geographic acquisitions are intended to expand the acquirers core business across new frontiers. Symbiotic acquisitions describe situations where newly acquired products and competencies are absorbed into the parents business but the acquired company retains some independence. Absorption acquisitions imply that the two businesses are fully integrated, with one effectively losing its identity. Kazmi (2006) classified mergers into four: horizontal, vertical, concentric and conglomerate mergers. Horizontal mergers take place when there is a combination of two or more organizations in the same business, or of organization engaged in certain aspects of the production or marketing processes. Vertical mergers take place when there is a combination of two or more organizations, not necessary in the same business, which create complementarity either in terms of supply of materials or marketing of goods and services. Concentric mergers take place when there is a combination of two or more organizations related to each other either in terms of customer functions, customer groups or alternative technologies used. Conglomerate mergers take when there is a combination of two or more organizations unrelated to each other, either in terms of customer functions, customer groups or alternative technologies. Drucker (1982) argues that there are five rules for successful acquisitions: it is essential for the acquiring company to determine exactly what contribution it can make to the acquired company; it is important to search for a company with a common core unity; the acquiring company should value the products; top management cover for the acquired company should be available and within a year managers should have been promoted across company boundaries. Ramsay (1987) argues that effective acquisition strategies have four stages, which are: the need to formulate a clear strategy; the search for possible acquisitions; the acquisition, and merger of organisations following acquisition. General conclusions from research, suggest that the synergies that were considered to exist prior to acquisition are frequently not realized (Thompson, 2004). There is also agreement that shareholders in a company which is taken over benefit from selling their shares to the bidder, who often pays an unwarranted premium. Shareholders who accept shares in the acquiring company instead of cash, together with the existing shareholders in that company tend to be rewarded less in the longer term using share price appreciation as a measure (Thompson, 2004).The profitability gains attributable to internal investments in companies are generally much greater that those accruing to acquisition investment. Lorenz (1986) suggests four schools that can be used to assess the relative success of acquisition. The schools are classified into accounting, economic, financial and managerial. The accounting school has concentrated on post-merger profitability and their general conclusion is that few acquisitions resulted in increased profitability and for most the effect was neutral. Some had negative effects. Cowling et al (1979) members of the economic school concluded that there has been an increase in market power but no increase in economic efficiency. The financial school has analysed share price movement and concluded that bid premiums are often as high as 20- 40%. One issue in this type of research concerns whether or not share price and performance accurately reflects economic performance. Kitching (1973) categorized in the managerial school, has concluded that the less related an acquisition is, the more risky it is. In addition it is more risky to move into new markets than into new technology, assuming that the two are not achieved together. Successful merger and acquisition outcomes are linked closely to the extent to which management is able to integrate organizational members and their cultures and sensitively address and minimize individuals concern (artright and cooper, 1996). By representing sudden and major changes mergers generate considerable uncertainty and feelings of powerlessness. This can lead to reduced morale, job and career dissatisfaction, employee stress, and uncertainty. Rather than increased 488

European Journal of Social Sciences Volume 11, Number 3 (2009) profitability, mergers have become associated with a range of negative behavioural outcomes such as: acts of sabotage and petty theft; increased staff turnover and increased sickness and absenteeism (Cartright, 2006). Ironically, this occurs at the very time when organizations need and expect greater employee loyalty, flexibility co-operation and productivity A study conducted by the British chartered management institute has identified a variety of people factors associated with unsuccessful merger and acquisitions (Cartright, 2006). These include underestimating the difficulties of merging two cultures; underestimating the problem of skill transfer; demotivation of employees; departure of key people; expenditure of two much energy on doing the deal at the expense of post merger planning; lack of clear responsibilities leading to post merger conflict; too narrow a focus on internal issues to the neglect of the customers and the external environment, and insufficient research about the merger partner or acquired organization. Merging two organizations involves decisions about the integration of strategic capabilities, in particular: operating resources, functional skills and general management skills (Thompson, 2004). The speed and pattern of the integration will be dependent on the desired interdependency of the business, and the opportunities for synergy. It is essential that there is strategy for the implementation and ideally this will be developed after the merger or acquisition when further details are available. More important issue concerning people, culture, structure, systems and procedures must be thought through. Finally, five factors for implementing acquisition and merger successfully can be identified as follows; Tread warily and carry out sufficient analysis - especially where there a hostile reaction from the target. Evaluate any prospective partner fully carrying out a culture and style assessment as well as a financial evaluation Take on board the best practices from both (all) businesses to increase the prospects for synergy. Communicate with those people affected to the maximum extent that is expedient Ensure that key people are identified and stay (Thompson, 2004)

3.0. Methodology
This research is an explanatory study that establishes causal relationship between employment and indices of recapitalization in Nigerian Banking industry. The sources of data for this study are secondary sources obtained from the Banking supervision department of the Central Bank of Nigeria .The data related to number of employees, shareholders fund, total assets and number of branches of all commercial banks in Nigeria as at the end of December 2008. The data on employment is longitudinal while the other data were cross sectional. The data on employment was between 1999 to 2008. The survey covered all the twenty four commercial banks operating in Nigeria with respect to the effect of recapitalization on employment. The method of analysis used for the study was multiple regression analysis. Simple percentages were used to find the changes in employment for the period of research. Multiple regression was used to establish the relationship between employment which is a dependent variable and share holders fund, total assets and number of domestic branches of commercial banks which were independent variables. Statistical package for social science was used to run the regression analysis.

4.0. Analysis and Discussion

The data on the trend of employment in the banking industry in Nigeria are shown in table 4.1

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Table 4.1: Total number of staff in Nigerian Banks from 1999 to 2008
Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: CBN 2008 Number of staff 52,330 51,275 45,962 57,451 60,227 59,227 50,111 52,288 64,028 77,519 Percentage Change -2.02% -10.36% 25.00% 4.83% -1.66% -15.39% 4.345 22.45% 21.07%

From Table 4.1, number of staff in Nigerian Banks in 1999 was 52,330, this reduced to 51,275 in year 2000 by -2.02%. The total number of staff further reduced to 45,962 in year 2001 by -10.36% as shown in table 4.1. There were appreciable increments in employment in the banking industry for Years 2002 and 2003. The percentages were 25.00% and 4.83% for the respective years. There were reductions in employment again in years 2004 and 2005 with 1.00% and -15.39% respectively. There were appreciable increments for years, 2006, 2007 and 2008 with 4.34%, 22.45% and 21.07% respectively for each of the years. These latest increment in employment were in the Years after bank consolidation in Nigeria. The indices affected by the bank consolidation were shareholders fund, total assets and number of branches. The shareholders fund for all the banks in Nigeria are shown in Table 4.2.
Table 4.2: Shareholders fund for All Nigerian Bank as at December 2008.
Name Of Bank Acess bank Plc Afribank Nigertria Plc Diamond Bank Plc Ecobank Nigeria Plc Equitorial Trust Bank First City Monument Bank Plc Fidelity Bank Plc First Bank of Nigeria Plc First Inland Bank Plc Guaranty Trust Bank Plc Stanbic IBTC bank Plc Intercontinental Bank Plc Citibank Nigeria Limited Oceanic Bank International Plc Platinum Habib Bank Plc Skye Bank Plc Spring Bank Plc Standard Chartered Bank Nigeria Limited Sterling Bank United Bank For Africa Plc Union Bank of Nigeria Unity Bank of Nigeria Wema Bank Plc Zenith Bank Plc Total Source: Authors Computation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Shareholders Fund 161944964090.00 128239916783.31 109613793158.56 42183935914.33 32121238068.35 124320885810.00 127077947282.30 315980264593.00 110002529061.13 151477473940.47 67584123898.79 191083620592.52 29040356820.98 206390040622.00 167336763304.00 78415509186.38 47157904882.00 27932101366.48 26800395706.00 189339118174.08 109632418629.00 32039757500.00 25179625658.00 310017986653.00 2716596861925.68 Percentage Of Total 5.96 4.72 4.03 1.55 1.18 4.58 4.68 11.63 4.05 5.56 2.49 7.03 1.07 7.60 6.16 2.89 1.74 1.03 0.99 6.97 4.04 1.18 0.93 11.41 100.00

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European Journal of Social Sciences Volume 11, Number 3 (2009) As shown in Table 4.2, the share holders fund for Zenith Bank Plc and first Bank of Nigeria Plc were above 23% of the total share holders fund in Nigerian banks. These were followed by intercontinental Plc with 7.03% and 7.60% respectively. Bank PHB and UBA were in the same range of percentages of 6.16% and 6.97%. Access Bank Plc and Guarantee Trust Bank Plc had 5.96% and 5.56% respectively. Six banks had less 2% of total shareholders fund in Nigerian banks; these were Ecobank Nigeria Plc, Equitorial Trust Bank, Citibank Nigeria Plc, Spring Bank Plc, Standard Chartered Bank Nigeria limited and Unity Bank Plc., Wema Bank Plc and Sterling Bank Plc had less than 1% of total share holders fund in Nigerian Bank. Total assets of banks also appreciated in Nigeria after consolidation as shown in table 4.3
Table 4.3: Total Assets of Nigerian Banks as at December 2008
Name Of Bank Acess bank Plc Afribank Nigertria Plc Diamond Bank Plc Ecobank Nigeria Plc Equitorial Trust Bank First City Monument Bank Plc Fidelity Bank Plc First Bank of Nigeria Plc First Inland Bank Plc Guaranty Trust Bank Plc Stanbic IBTC bank Plc Intercontinental Bank Plc Citibank Nigeria Limited Oceanic Bank International Plc Platinum Habib Bank Plc Skye Bank Plc Spring Bank Plc Standard Chartered Bank Nigeria Limited Sterling Bank United Bank For Africa Plc Union Bank of Nigeria Unity Bank of Nigeria Wema Bank Plc Zenith Bank Plc Total Source: Authors Computation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Total Assets 737479948202.00 562769071608.00 468787637111.34 422277291358.00 214079529369.91 449409365582.80 475409356582.80 1394154335597.00 312429428047.04 902509294324.00 327288208086.81 1228401205747.91 158735973221.85 1190234914052.00 871953110857.00 50239258334538.00 123709391898.00 161729089139.72 163424169817.00 950677299786.63 1380248798429.00 318038644774.37 186994212458.00 1699552251580.00 15202421633397.40 Percentage Of Total 4.85 3.70 3.08 2.78 1.41 2.95 3.13 9.17 2.01 5.94 2.15 8.08 1.04 7.83 5.74 3.30 0.81 1.06 1.07 6.25 9.08 2.09 1.23 11.18 100.00

From table 4.3 only Zenith Bank Plc had above 11.% of total of total Assets in Nigerian banks, closely followed by first Bank of Nigeria Plc and union Bank of Nigeria with 9.17% and 9.08% respectively. Intercontinental Bank Plc had 8.08% while Oceanic Bank International Plc had 7.83% of total of total Assets of Nigerian Banks. Five Banks had less 2 % of total of total Assets of Banks in Nigeria: these banks were Equatorial Trust Bank, Citibank Nigeria Limited, Standard Chartered Bank Nigeria Limited, Sterling Bank Plc, and Wema Bank Plc. Spring Bank Plc is the only Bank that had less than1% of assets of Nigeria Banks The number of domestic branches of Nigerian Banks also varies like other indices affected by consolidation in Nigerian Banking industry as shown in Table 4.4

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Table 4.4: Number of Domestic Branches of Nigerian Banks.
Name Of Bank Acess bank Plc Afribank Nigertria Plc Diamond Bank Plc Ecobank Nigeria Plc Equitorial Trust Bank First City Monument Bank Plc Fidelity Bank Plc First Bank of Nigeria Plc First Inland Bank Plc Guaranty Trust Bank Plc Stanbic IBTC bank Plc Intercontinental Bank Plc Citibank Nigeria Limited Oceanic Bank International Plc Platinum Habib Bank Plc Skye Bank Plc Spring Bank Plc Standard Chartered Bank Nigeria Limited Sterling Bank United Bank For Africa Plc Union Bank of Nigeria Unity Bank of Nigeria Wema Bank Plc Zenith Bank Plc Total Source: Authors Computation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 No Of Domestic Branches 118 262 250 209 92 145 112 478 151 154 61 292 13 345 123 226 191 14 101 619 383 204 150 321 5014 Percentage Of Totals 2.35 5.23 4.99 4.17 1.83 2.89 2.23 9.53 3.01 3.07 1.22 5.82 0.26 6.88 2.45 4.51 3.81 0.28 2.04 12.34 7.64 4.07 2.99 6.40 100.00

As shown in Table 4.4, UBA had the highest percentage of domestic branches of Nigerian Banks 12.34%. This is closely followed by first Bank of Nigeria Plc with 9.53%, Oceanic Bank International Plc had 6.88% while Union Bank of Nigeria had 7.64% of total number of domestic branches in Nigeria. Stanbic IBTC and Equatorial Trust Bank had less than 2 % of total domestic branches of Banks in Nigeria. Citibank Nigeria Limited and Standard Chartered Bank Nigeria Limited had less 1% of total number of domestic branches of Nigerian Banks. The objective of the study was to find out the relationship between number of staff and shareholders fund, total assets and number of branches, this was achieved through multiple regression analysis. From the results of multiple regression carried out it was shown that shareholders fund, total assets and number of branch had significant influence on employment in Nigeria Banks as shown in Table 4.5
Table 4.5: multiple regression analysis between Bank consolidation indices and number of staff.
Model Summary Change Statistics Model 1 2 3 R .787a .785b .769c R Square .620 .616 .592 Adjusted R Square .562 .579 .573 Std. Error of the Estimate 1621.14789 1590.07912 1601.38966 R Square Change .620 -.004 -.024 F Change 10.856 .203 1.314 df1 3 1 1 df2 20 20 21 Sig. F Change .000 .657 .265

a. Predictors: (Constant), No of Branches, Total Asset, SHF b. Predictors: (Constant), No of Branches, SHF c. Predictors: (Constant), No of Branches

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European Journal of Social Sciences Volume 11, Number 3 (2009) The result in Table 4.5 shows that number of staff in Nigerian Banks in predicted by the variables of consolidation. From the multiple regression analysis in Table 4.5 F value when number of staff was regressed with variable of consolidation was 10.856, F = (3/20 = 10.856, p = 0.05). The regression is a significant explanation of the variation in the number of staff of Nigerian Banks since 10.856 is higher than critical value of F = 4.94 at 0.05 alpha level. The coefficient of determination was 63%. The ANOVA, result is shown in Table 4.6
Table 4.6:
ANOVA d Model 1 Sum of Squares 85590506 52562409 1.4E+008 85057531 53095384 1.4E+008 81735041 56417874 1.4E+008 df 3 20 23 2 21 23 1 22 23 Mean Square 28530168.53 2628120.468 42528765.61 2528351.606 81735040.67 2564448.831 F 10.856 Sig. .000a

Regression Residual Total Regression Residual Total Regression Residual Total

16.821

.000b

31.872

.000c

a. Predictors: (Constant), No of Branches, Total Asset, SHF b. Predictors: (Constant), No of Branches, SHF c. Predictors: (Constant), No of Branches d. Dependent Variable: No of Staff

From Table 4.6 the F statistic when the three variables of consolidation were regressed with number of staff was 10.856, with a coefficient of 62% when Total Assets was dropped, the F statistic was 16.821 with a coefficient 61.60% when shareholders fund was dropped the F statistic was 31.872 with a coefficient of 59.20% .All the F statistics were significant but from the model summary only number of branches is a significant explanation for the variation in number of staff in Nigerian Banks. This means that shareholders fund and Total Assets are not significant in explaining the variation in the changes of employment in Nigerian Banks The coefficient of the model are shown in Table 4.7

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Table 4.7:
Coefficients Unstandardized Coefficients B Std. Error 533.503 595.122 6.04E-011 .000 -1.5E-011 .000 12.698 2.389 505.558 580.535 6.12E-011 .000 12.632 2.339 493.897 584.574 13.096 2.320
a

Model 1

Standardized Coefficients Beta .155 -.062 .746 .157 .742 .769

t .896 1.109 -.450 5.315 .871 1.146 5.401 .845 5.646

(Constant) SHF Total Asset No of Branches (Constant) SHF No of Branches (Constant) No of Branches

Sig. .381 .280 .657 .000 .394 .265 .000 .407 .000

a. Dependent Variable: No of Staff

From Table 4.07 two variables were not significant, which were shareholders fund and Total Assets. From Table 4.7 there are three regression equations (a) Number of staff = 533.503 + 6.04 (SHF) 1.5 (Total Assets) + 12.698 (Number of branches) (b) Number of staff = 505.588+6.12 (SHF) + 12.632 (Number of branches). (c) Number of staff = 493.897 + 13.0 96 (Number of branches). The only regression equation that is significant is equation C i.e. number of staff is predicted by the number of branches while the other equations are not significant

Summary and Conclusions

The study revealed that there was reduction in employment in the Banking Industry between 1999 and 2001. There was appreciable increase in employment in the Nigerian banking industry after the consolidation exercise from year 2006 up to 2008. Two Banks have 23.04 % of the total shareholders fund in the banking industry. 25% of banks in Nigeria had less 2% of total shareholders fund. 8.33% of banks in Nigeria had less than 1% of total shareholders fund. Other banks shareholders fund are between 2 % and 7%. 20.83% of Nigerian banks had less 2% of Total Assets in the banking industry. 8.33% of Nigerian banks had 20.35% of Total Assets. Other banks have between 2% to 8% of Total Assets. 20.83% of Nigerian Banks had 42.61% of bank branches in Nigeria. Results of multiple regression analysis revealed that shareholders fund, Total Assets and number of domestic branches caused 62.0% of employment in the banking industry. Shareholders fund and Total Assets were not significant variables that have linear relationship with employment in the Banking industry. In conclusion Banks should endeavour to increase the number of their domestic branches to increase employment in the Nigerian economy as they increase their shareholders fund and total Assets because it is only number of domestic branches that was a significant variable explaining the variation in employment in Nigerian banks.

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