Background of the Study
Bank mergers and acquisitions remain complex corporate events that affect bank customers in particular markets for banking services they seek to purchase (Samolynk and Avery, 2000). This assertion agrees with both the Structure-Conduct Performance (SCP) and Efficient-Structure Performance (ESP) theories of banking consolidation, which state that changes in bank market structures and concentrations due to banking consolidation affect the way banks behave and bring about gain in overall bank efficiency respectively (Shaik et al 2009). This theory was generally based on general bank lending and was not narrowed down to specifics such as small business lending. At present, the dynamic effect of a merger-driven collusion power on the banks’ ability to create small risk assets has remained a contentious issue among Nigerian policy makers. Therefore, with subsequent banking consolidations and recapitalizations that have resulted in the emergence of huge banks, the policy makers have raised great concern and fear that small business borrowers’ may not have been benefiting from banking consolidation. Determining the reality of this fear is a necessity that cannot be ignored in order to mitigate any likely risk of bad economic policy. What then are mergers and acquisitions that could make the phenomena have the potential to influence the behaviour of banks if we may ask before we proceed? As a concept, a merger according to Ofoegbu, (2003), takes place, where shareholders or business enterprises combine their operations in order to achieve mutual sharing of risks and rewards attached to the combined enterprises. This means in relation to banks, it is a combination of two or more separate banks into a single bank. On the other hand, an acquisition involves the purchase of controlling shares in another company (Oye, 2011). In this case, the acquiring entities obtain control over the action of the entities taken over and this control gives the acquirers the power to govern the financial and operating policies of the acquired, which enables them to obtain benefits from their activities (David, Britton and Ann 2009).
Both mergers and acquisitions can be used interchangeably as forms of business combinations and are consummated through consolidations. Banking consolidation brings about evolution in banking product market. However, despite the potential product evolution, small business lending is likely to be one of the banking products that would remain local amidst the evolution (Samolynk and Avery 2000).