The Impact of Merger and Acquisition on Financial Intermediation: Empirical Evidence from Nigerian Banking Industry

Abstract

The paper examines the impact of bank consolidation on financial inter-mediation using data from the Nigerian bank industry from 2002 to 2010. Two models were specified and estimated: one for the lending activity and the other for the deposit activities. The model for lending activity has an interest rate on the loan as the dependent variable and deposit rate represents the dependent variable in the deposit model. The results showed that merger and acquisition, which was the main policy instrument for bank consolidation, has a significant effect on both lending and deposit activities of the banks in Nigeria. The result also shows that changes in the degree of average competition in bank markets proxied by the spread between interest rate among the banks is positive and significant in both the loan and deposit markets. This confirms the high level of price competition among the banks. The consolidation exercise had significant positive effects on both financial inter-mediation and especially on deposit mobilization. The study concluded though, the consolidation policy might have had other side effects, it has at least led to higher deposit mobilization, higher competition but however, it has led to higher cost of borrowing and spread between lending and deposit rates.