The effect of bank consolidation on bank performance in Nigeria

CHAPTER ONE

1.0 BACKGROUND OF STUDY

The recapitalization and consolidation exercise in the banking sector by the former Central Bank of Nigeria Governor, Professor Charles Soludo has necessitated the need for different organization to participate in the consolidation of companies (mergers and acquisitions). The term refers to the recapitalization current trend of requiring all commercial banks to increase their capital base 2billion to 25billion Naira by the Central Bank of Nigeria on or before December 31, 2005. This has sent some of these banks to consider moving Mergers and acquisitions as a survival strategy.

Where we were before consolidation

89 banks with 3382 branches predominantly in urban centers as of June 2004 is characterized by structural and operational deficiencies, including:

• Under capital base; Prevalence of some banks
• Insolvency and illiquidity.
• Depending on public sector deposits and trade currencies.
• Poor quality of assets.
• Weak corporate governance, a system with low confidence of depositors.
• Banks not appropriate to support the real sector of the company in 24% of GDP, compared with the average African 78% and 272% for developed countries.

1.0.1 THE VISION OF CONSOLIDATION ARE AS FOLLOWS:

• In Africa CBN financial center and as one of the best in the world
• Facilitate the development of a sound banking system and insurance
• Improving transparency and accountability in the sector
• Driving down the cost structure of banks and increase their competitiveness and development oriented
• A new banking system that depositors and investors can trust can rely on the beginning of a new economy

There are signs that banks are now favorably disposed to the consolidation (mergers and acquisitions) After considering several options available to them by reason of the introduction of the recapitalization 25billion Naira, which also sends the majority of banks Directors and their boards to meetings and classification of the game plans of the preliminary reports from the negotiating table, banks may have several options to explore. In an attempt to ensure that banks meet the new requirement, some banks are exploring the possibility of inviting foreign investors to buy the banks. Other people are looking the possibility of getting investors to shore up its capital, and some are looking at the option of the capital market, while others are considering mergers and acquisition.

This process of recapitalization of the recapitalization and restructuring of Nigeria (commercial) banks have been accelerating since the decision was taken by CBN on recapitalization of banks in Nigeria 2billion 25billion naira by December 31, 2005. The recapitalization plan as confirmed by the governor CBN, Professor Charles Soludo, is a subtle way to force banks to merge to Nigeria to strengthen the Nigerian banking system as a whole through consolidation (mergers and acquisitions). The process over the banking sector would allow to meet international standards.

Besides pronunciation by Professor Charles Soludo, the recent change in the banking industry has necessitated the need for the various banks to participate in the consolidation. The advance of English Oxford student dictionary fourth edition (1999) defines consolidation as a positive energy or success stronger so it is more likely to continue and concentrations as the combination of commercial companies into one. Acquisition by contrast was defined by another source such as a company a controlling stake in another company may be legal subsidiary of another company or selected assets of another firm.

May involve the purchase of another company of assets or shares in the acquired company continued exist as a wholly owned subsidiary legal needs. For the purposes of this study, mergers and acquisitions, be deemed to have occurred when two or more organizations bind all or part of its operations. Globally, these business combinations have involved various sizes of businesses and assets and have cut all sectors economic. While many business combinations have been well received by the parties involved, others have made strong resistance often results in long battles avoid combinations.

With the latest regulation of CBN and the systematic withdrawal of federal funds from banks, many banks are on the verge of extinction. As a result of this set one of the banks are now going public or trying to position itself as the bank of choice for the possible merger or acquisition by other banks. This new development will also impact on employment, such as higher management would be affected and staff of other young people would be thrown in the labor market in the supply market to have the required number of directors by the regulatory authorities and the economy in general.

In Nigeria today, a series banks wishing to merge can run into difficulties, because most Nigerian banks are not quoted on the stock market and property of some are really bad. The effect of the merger is that the merging banks in the country, under the dispensation may lose their licenses and be issued to reflect the new consolidated group. Following Later in the following chapters, which take a critical eye on the impact new developments are to be or will have on Nigeria's banking sector and the economy in general.

1.1 THE PROBLEM

Business organizations are seeing recently Consolidation (mergers and acquisitions) as an alternative means of recapitalization. The current trend of requiring all commercial banks to increase their capital base to 25 million 2billion naira by CBN on or before 31 December 2005 has sent some of these banks in their heels to consider mergers and acquisitions as a survival strategy.

He hopes that the problems about of consolidation

Do not leave a high degree of calculated risk taking to seize opportunities arising from the framework of its activities, but there is a risk Nigeria evasion in business, and where the risk is low, development is also low and industrial progress becomes nearly static.

Consolidation could be a very costly enterprise in terms of funding necessary to successfully prosecute.

Corrupt practices in the levels of public and private sector are another impediment. This need to be discouraged and the incidence of corruption practices should be severely punished, because it deals with building trust requires and confidence to promote the consummation.

Anaemically Nigeria suffers from a lack of information that unfortunately can hinder significant jumps in combinations Business

1.2 OBJECTIVES OF THE STUDY

The primary objectives of this study are

• To evaluate the involvement consolidation in the banking sector
• To examine the impact of consolidation on the shores of Nigeria.
• To highlight the potential challenges policy posed by the consolidation of banks
• Assessing Nigeria banks before consolidation
• Identify the benefits of consolidation banks
• Evaluate the prospect of banks after the consolidation
• Assess the impact of bank consolidation in Nigeria

1.3 STUDY SIGNIFICANCT

The importance of this study is to add the general body of knowledge, information the general public about the impact of bank consolidation on bank performance in Nigeria. And also explain the challenges of consolidation of banks. This research will also establish the fact that the consolidation (mergers and acquisitions) is a real means to stimulate the growth of banking.

Scope and 1.4 LIMITATION OF STUDY

The scope of this study is to understand the challenges of consolidation of banks.

Due to financial constraints, coupled with low use research materials made available on the Securities and Exchange Commission Library. Central Bank Nigeria (CBN) and the emission Houses Association of Nigeria library, where books related to the research topic will be consulted and the Internet.

1.5 RESEARCH QUESTION

The question in this research is

• Is there a significant relationship between capitalization and liquidity ratio of banks in Nigeria?
• Is there a significant relationship between capitalization and loan- a deposit?

1.6 RESEARCH HYPOTHESIS

Baridam (2001) defined as a tentative answer hypothesis to this problem. The following hypotheses are formulated from the objectives and be verified in the course of this research and identified a guided null in finding the solution to the problem that is induced in this research.

HO: There is no significant relationship between capitalization and liquidity ratio of banks in Nigeria

HO: There is no significant relationship between capitalization and loan to deposit?

1.7 Definition of 'TERMS

• Bank recapitalization: The act of providing long-term funds of the bank's owners to meet the requirement of the monetary authority. Osiegbu (2005).
• Consolidation: The reduction in number of banks and other institutions adopting deposit with a simultaneous increase in the size and concentration of institutions of consolidation in the sector (BIS, 2001:2)
• Merger: It is the combination of two or more independent companies into one company
• Acquisition: It is when a company takes over the controlling share interest another company

1.8 ORGANIZATION OF STUDY

The research work consists of five chapters follows:

CHAPTER I: consists in the introduction, problem statement, the purpose of the study, research questions, hypotheses research, the importance of the study, limitations of the study, organization of the study and definition of terms.

CHAPTER TWO: In this section consists of reviews of relevant literature renowned authors in the field of study.

CHAPTER THREE: This section is the methodology selected by the study investigator. It involves research design, sampling procedure, data collection, operational measure of the variables, and the technique data analysis.

CHAPTER IV: This is a live presentation and analysis of data collected from major sources for the study.

CHAPTER FIVE: This is the last section of the work and consists of discussion, conclusions and recommendations made by the researcher.

CHAPTER DOS

2.0 THE CONCEPT OF CAPITAL BASE

The recent call for the recapitalization of the banking sector has raised many discussions among bank regulators, promoters and depositors as if bracing for the bank's capital base is a new phenomenon in Nigeria. Historically, z1930 failure pioneer and 1940, led to the enactment of the Banking Ordinance 1952. Banking Ordinance 1952 prescribes an operating license and stressed the minimum capital for all banks (Onoh, 2002: 321). Since then, increasing the bank's capital has become the hallmark of policy responses of the Monetary Authority of Nigeria.

The capitalization is an important component of reforms in the banking sector, due to the fact that a bank with a strong base Capital has the ability to absorb losses arising from liabilities unprofitable (NPL). The pursuit of capitalization achieved through consolidation, convergence, and the capital market. Thus, banking reforms are primarily driven by the need to achieve the objectives of consolidation, competition and convergence. (Deccan Herald, 2004) in the financial architecture.

2.1 THE POSITION OF THE BANKING SECTOR BEFORE

CONSOLIDATION

There exist eighty-nine (89) banks predominantly in urban centers in June 2004, which is characterized by structural weaknesses and operational base low capital. Predominance of a few insolvent banks and lack of liquidity by the public sector unit deposits and foreign currency trade. Poor asset quality, co-operate weak government, a system with low confidence of depositors. Banks that did not come to support the real sector of the economy in 24 percent of GDP compared with an average African 87 and 272 percent for developed countries.

Furthermore, the vision of consolidation, among others, increasingly includes Africa's financial hub and the CBN as one of the best in the world. Within ten years, the Bank of Nigeria (s) must be between 50 0f the 100 banks in the world. Facilitate the development of a strong engraving and sound banking system. Improving transparency and accountability in the sector. Follow the cost structure of banks and make them more competitive and focused development. A new banking system that depositors can trust and investors can rely on to usher in a new economy.

2.1.1 CONSOLIDATION REFORM AGENDA

• Recapitalisation of banks to 25 billion naira share holders funds to December 31, 2005.
  • Zero tolerance in misreporting and strokes.
  • Stricter enforcement of corporate governance principles.
  • Framework policies on risk management systems.
  • Strengthening risk management systems in banks.
  • Risk-based supervision.
  • Payment system reforms.
  • Closer collaboration with the Economic and Financial Crimes Commission (EFCC) in creating the Financial Intelligence Unit (FIU) and the implementation of measures against money laundering.
  • Some elements of reform, a stronger, Universal, banks.

2.2 Benefits of consolidation

The consolidation program has fundamentally changed the nature of competition in the banking sector in Nigeria. Through the new minimum capital requirement, the number of banks in the country has successfully reduced eighty-nine to twenty-five. The policy also effectively raised barriers to entry for those wishing to begin banking business (Osubo, 2006.5).

There are many benefits of cleaning up the banking sector in Nigeria, Nigerian banks can earn much from them. Some of the benefits are

• Appearance 25 banks through consolidation (compared to 89 banks before consolidation). The success of the banks accounted for about 93.5% of deposits aggregate
• focus more effective supervision in a smaller number (25) 89 banks rather than banks in most patients. No more total regional banks / ethnically based
• Strong capital is a basic indication of solvency, and take a long time with the risk of neglect of any of the banks recently capitalized to walk their way to insolvency
• The consolidation is a means to remove weak banks in the system in an orderly manner
• The consolidation to improve profitability and operational efficiency of banks.
• The expansion of the shareholder base of Nigerian banks, thus eliminating the phenomenon of "family bank" and the tendency to poor corporate governance.
• The Nigerian economy will be stronger and better capitalized to fund projects long-term development in various fields of economics and business.
• The banks also invest in infrastructure development, business good business and also support entrepreneurship.
• The banks invest heavily in training and labor. (Osubo, 2005).
• Improved liquidity and stock market capitalization
• total capitalization of banks as a market capitalization increased from 24% to 38%.

2.4 The concept of consolidation

Consolidation is seen as reducing the number of banks and other institutions adopting deposit with a simultaneous increase in the size and concentration of institutions of consolidation in the sector (BIS, 2001:2). It is mostly driven by innovation technology, deregulation of financial services, improve mediation and a greater emphasis on shareholder value, privatization and competition International (Berger et al, 1991; of Nicole et al …. 2003: IMF, 2001).

The consolidation process has been held to improve the efficiency of banks through revenues from reduced costs in the long term. It also reduces the risk of the industry of weak banks by the disposal and acquisition of smaller banks by larger, stronger and creates opportunities for greater diversification and financial intermediation.

The pattern of consolidation in the banking system could be viewed from two different perspectives, namely, strengthening market-driven and directed by the Government. Market consolidation of propulsion, which is more pronounced in developed countries see the consolidation as a way to increase competitiveness with added comparative advantage in the global context and eliminate excess capacity more efficiently than bankruptcy or any other means of exit.

In addition, the consolidation promoted by the Government arises from the need to solve the problem of financial difficulties in order to avoid systemic crisis and to restrict inefficient banks (Ajayi, 2005:2). One of the overall effects of consolidation is reducing the number of players, moving the industry closer to an oligopolistic market (Adedipe, 2007:37).

2.4 THE REASON FOR CONSOLIDATION

The inability of the banking system in Nigeria to engage voluntarily in the consolidation in line with the global trend has forced the need to consider adopting an appropriate legal framework and supervision as well as a comprehensive package incentives to facilitate consolidation in the banking sector, both as a crisis resolution option and promote strength, stability and efficiency of the system the main organ of regulation of banks in Nigeria (Soludo, 2004:4).

The main objective of the banking system is to ensure price stability and facilitate rapid economic development. Unfortunately, these objectives remain largely unreached in Nigeria because of some deficiencies.

These include:

• Technological album: A bank wishing to improve their operations, but limited by its inability to easily access the necessary technology may be driven in the merger with another having the technological advantage over her
• The desire for growth: a merger agreement can be made by a bank for exploiting the other bank desire for growth.
• Misclassification of number of banks: While the banking system in Nigeria is, on average, have given satisfactory results, a detailed analysis of the condition of individual banks, as of December 2004 showed that no bank was rated as very good to only 10 were considered satisfactory sound 51, 61 marginal and unsound 10. (Imala, 2005 pp: 27).
• Under base capital: The capital base Nigeria banks average is U.S. $ 10milion, which is very low compared to that of banks in other developing countries like Malaysia where the capital base of the smaller bank is U.S. $ 526million. Similarly, the overall capitalization if the banking system in Nigeria 311million naira (U.S. $ 2.4million) is extremely low relative to the size of the Nigerian economy and in relation to the capital base of U.S. $ 688billion for a single banking group France U.S. $ 541billion for a bank in Germany. (CBN 2005: 17)
• Stock exchange quotation: Business combination could be motivated by the desire to official listing. In this case, a bank can not meet the requirements of the stock market, but desirous of publicly traded can be integrated with another bank in order to achieve their goal.
• Increased Market Share: Consolidation (mergers and acquisitions) may be required by the hope that banks have similar line of products to expand its market share after the merger.

Besides the above shortcomings, the Nigerian banking system has the following operational problems:

• Weak corporate governance, inaccurate and inconsistent evidence of compliance with regulatory requirements, declining ethics and gross domestic abuse resulting in huge arrears insider related credits.
  • The over-reliance on public sector deposits and trade currency and the abandonment of small and medium scale private savers. (Imala, 2005:27)

2.5. Bank consolidation through mergers and acquisitions

The consolidation was achieved through mergers and acquisitions. Fusion is the combination of two or more independent companies into one company. The company that results of the process may take any of the following identities: The objective acquirer or new identity.

Acquisition by contrast, occurs when a company takes over the control shareholding of another company. Usually, the end of the process, there are two entities or separate companies. The company became the target is a division or a subsidiary of the acquiring company (Pandey 1997:885).

While consolidation involves bank mergers and acquisitions, convergence involves the consolidation of banking and other financial services such as securities and insurance (FRBSF Economic Letter, 1998).

Anecdotal evidence indicates that the most common form of mergers and acquisitions in the financial services industry involves national firms competing in the same segment (for example, one bank to another). The second most common type of merger and acquisition transactions involving domestic firms in different segments (for example, insurance companies, bank). cross-border mergers and acquisition are less frequent in particular firms to participate in different segments (Roger Ferguson Jr., 2002).

2.5.1 Approval under mergers and acquisitions

Before any bank can say that consolidation through mergers and acquisitions in the industry of Nigeria, first, must seek and obtain approval of the following regulatory authorities and supervision in the industry. These include the Securities and Exchange Commission (SEC), the Central Bank of Nigeria (CBN), Nigeria Stock Exchange (NSE) and the Committee on Business (CAC). (CBN 2004).

2.5.2 PROCEDURES FOR OBTAINING THE APPROVAL OF MERGERS AND ACQUISITIONS

The Company and Allied Matter Act (CAMA 1990) and Investment and Securities Act (ISA 1999) provide the main legal provision mergers and acquisitions in Nigeria. This provision grants the right to review and give their approval to the Securities and Exchange Commission (SEC). Before granting approval, the SEC considers that the effect of the proposed transaction in the competitive environment, in order to ensure that the transaction does not restrict competition or create a monopoly. The procedure or process obtain the approval of mergers and acquisitions involving four (4) basic steps:

• Fill a notification Pre-Merger/Acquisition
• Fill a formal request for approval of

Proposed merger / acquisition.

• Keep Meetings court order
• Meet the post-approval requirements

2.6 THE ROLE OF THE SEC, CBN, NSE, and ACC and regulatory authorities mergers and acquisitions

Securities and Commission (SEC):

The law provides that every Nigeria merger, acquisition or business combination between companies or between companies will be subject to prior review and approval of the Security and Exchange Commission (SEC), (1999:599 ISA (2). Paragraph 3 of Article 99 the Commission must approve any application under that section if and only if the committee feels "It is not likely to cause substantial competition or a tendency to create a monopoly in any line of business of the company" or "use of themselves through voting or granting of powers. "It should be noted that both mergers and acquisitions require the approval of the SEC in the monopoly. It should be noted that consideration monopoly is a matter before the merger. No need to trade through the process of merger, if at the end or in the middle of the SEC process to oppose the adoption of the basis that the combination inhibits competition. It is therefore important to seek prior approval to the merger must SEC. The application for approval prior to the merger should include information on the history and business of combing business and its market.

In addition to the pre-merger approval on issues relating to monopoly, the SEC must approve the plan after a court session and meetings of the court sanctioned. SEC's role in this sense is very different from the prior approval of the merger. SEC steps in this "art" of their traditional role of regulation to ensure compliance by parties to the disclosure and corporate governance governance requirement of the law. SEC's role is not to be a participant, but to create an enabling environment for the parties to play in case market conditions.

Central Bank of Nigeria (CBN) Approval:

Banks and other institutions Financial Law (Bofid) 1991 CBN Act 1991, the CBN has enormous powers to regulate banks, including the approval of the consolidation of banks and changes in the structure and management of any bank. It follows that, in view of the world powers of the CBN, it is recommended that prior approval to the merger of CBN obtained before beginning of the consolidation process. Prior approval to the merger of mergers and acquisitions, would be required to undergo three stages of approval namely the pre-merger consent of the CBN, approval – in principle, and final approval. Furthermore, it is imperative that the CBN approval was sought and obtained the document regime, the shareholders agreement, the new memorandum and articles of association under agreements to shareholders, if necessary.

During the application process, all structural management measures would be subject to the approval of CBN. These include the reorganization, rationalization of staff, approval of the name, rationalization branch office, etc.

Nigeria Stock Exchange (NSE) Approval:

The approval of the Nigeria Stock Exchange is necessary if the merged company is to be a corporation and individual trading on the stock market or some of the merging companies are listed on the exchange. During the period fusion, the NSE is a place of parties listed on the merger or the suspension technique to prevent unfair trade and protect businesses.

CORPORATE AFFAIRS COMMISSION (CAC) ADOPTION:

Essentially, from a legal standpoint the CAC has been limited to a ministerial function when mergers and acquisitions.

What is the custodian of business records, the majority of both processes end with the CEC for its safe custody. This is done through returns legal. The certificate of incorporation will eventually returned and issued for a new merged company. Social capital may have to increase substantially. In addition, yields for the award will be presented. Some of these processes involve payment of large sums of registration fees and fees for filling. It is therefore imperative that these costs are expected.

Although ACC is a purely ministerial role in the regulation of mergers and acquisitions, improving its technology and some service delivery means that is better able to follow the defaulting companies and this may delay the process for companies involved in the merger process which yields in the ACC is not far. companies may have to pay unpaid fines.

2.7 CHALLENGES BANK CONSOLIDATION

The challenges identified in this research cut across the banks, their shareholders, bank employees and other stakeholders in the banking sector.

It is well established that the way to improve efficiency in any industry to promote competition among operators. This is evident in two key growth sectors Nigeria's economy, aviation and telecommunications in the past one decade (Adedipe 2005:37). A major challenge of banking consolidation is the way to encourage competition with less mega banks.

Certainly can not but be more competitive. There is, however, on the other side of the argument, which considers the number and the proliferation of bank branches. The smaller number of banks is likely to be pressured to expand further in search of business opportunities through aggressive brands hitherto unexplored territories. (Luna, 1998).

There is ample evidence that this is the address emerging banks in Nigeria is likely to continue, indications through raising capital in the presentation of information. International evidence on consolidation of banks also confirms this, except that is more in the context of acquisitions Boarder Cross (Hughes, Lang, Master and Moon, 1998).

One of the supposed benefits of consolidation (Larger banks) is indeed challenging and efficiency. The argument has been that larger banks may not necessarily be more efficient filter or, if not have no incentive to improve efficiency in the field of limited competition. Observers of the Nigerian banks have indicated that the big banks (perhaps by increasing in the number of customers) have slipped back to their old habits before the arrival of the new generation banks. Available empirical evidence Hughes et al (1998).

Another major challenge is strengthening capacity building for risk management for both regulators and operators. The two groups the banking system need to improve their risk management skills and acquire new ones in fact, covering the ground three of hazard recognition, evaluation and monitoring (Adepide, 2005:41).

2.8 INVOLVEMENT OF CONSOLIDATION ON THE BANKING INDUSTRY

The Central Bank's directive that banks should increase their capital base to the tune of N25 billion several implications for both the banking sector and the Nigerian economy in general. These consequences are as follows: on the banking industry, the consequences can be categorized into two parts namely, brand and structural implications.

2.8.1 BRAND IMPACT: With regard to the industry implications of new institutions coming from the dust of consolidation will have to deal with the brand-related issued including:

• There will be a name change if two or more banks get together and choose not to adopt any of the name of the participating bank.
• The logos were officially used by each of these banks will be removed and adopted another.
• It will also be the development of a new culture mark for emerging banks after the consolidation.

• The brand message of banks will also be changed.

• The place of information and communication technology (ICT) in the bank will be changed, ie, software for banks and new banks will go for the best for meet customers demand.

2.8.2 IMPACT STRUCTURE: The recapitalization of banks are left in their wake, a number of issues structural have a direct impact on staff, customers and the banking sector. They include:

• The reduction in the number of banks in the country
• The closure of many small banks, especially those in rural areas with poor capital deposit.
• Increased competition due to better performance of incentives and services of banks.
• Acquisition of digestive issues including loss of jobs, the consolidation of branches and combating inefficiency and bureaucracy. The reconstitution of the directors and the banks.

Source: THE NIGERIA BUSINESS INFORMATION

2.9 PERSPECTIVE OF BANKS After consolidation

• The initial public offering banks through capital market when completed is likely to increase the level of financial deepening as evidenced by the increase in volume and value of trade in the stock market.
• The banking sector reform has been able to attract more foreign investment entry, especially in the field of portfolio investment, which if sustained development boost the level of economic development especially to the non-oil sector activity.

• The consolidation of banks can attract a significant level of the entry of foreign banks in Nigeria, which will become a feature of the industry over time. This will bring more trust in the community international banking sector thus attract more foreign investment in the country. As the increased level of financial intermediation, the interest rate may drop and increase lending to the real sector to generate employment and boost growth.

CHAPTER THREE

3.0 METHODOLOGY

The first two chapters of this research have dealt extensively with the introduction and literature review on the subject and matter. It is now necessary to describe how research is conducted.

Methodology refers to the methods and procedures carry out the study. Includes research design, sample procedure, questionnaire design, data collection and analysis technique data.

DESIGN 3.1 Research

It is the framework for a study to be used as a guide to collecting and analyzing data. This research will use the descriptive research design to investigate the research topic. THE EFFECT OF THE CONSOLIDATION OF BANK PERFORMANCE OF BANKS IN NIGERIA.

They also refer to a set of instructions to do something that leaves the details to be worked out. According Okwandu (2004) design aterm is used to describe a number of decisions to be taken in relation to the collection of data every time before the data are collected.

3.2 Data method collection

Data collection involves obtaining information relevant to the main idea of the research questions / hypothesis of the study to confirm whether they are true or not. According to Olaitain et al (2000), which is the systematic way of obtaining information, the factual evidence or observation to answer the specific research question or hypothesis tests of an investigation. There are basically two data types. These are: primary and secondary data. Primary data are data from original source or for a specific purpose. While secondary data are collected from existing ones. Secondary data used in this study. Secondary information was obtained from CBN statistical bulletin and annual report.

3.3 OPERATIONAL MEASURES OF VARIABLES

In the research, the independent variable and dependent are eligible for an equation called regression equation that data is to express the relationship between variables. The simple linear regression analysis is used to analyze the hypotheses.

• In one scenario, the functional relationship was postulated between the capital base () bindings (X) and (performance) liquidity ratio Nigerian banks (Y).
• The hypothesized relationship is between the two (capital base) Consolidation (X) and (performance) loan ratio to deposit (Y).

To express the simple linear regression model in the form of equation is:

Y = A + bx

Where Y Dependent Variable =

a = parameter of intersection (where the regression surface cuts the y-axis)

b = slope of the regression line (Which is the rate of change in Y with respect to X)

x = independent variable

3.3 Analysis of TECHNICAL DATA

In this study, parametric tests were used. The statistical technique to use is the correlation coefficient, which is often referred to as the moment Pearson product correlation coefficient, the correlation coefficient is calculated using the following formula:

r = n () – ()

The correlation coefficient tells us that the nature of the relationship between the dependent and independent.

It was originated by Karl Pearson around 1900, correlation coefficient describes the strength of the relationship between two sets of objects of value. You can take any value from -1.00 to 1.00 inclusive. A correlation of -1.00 to 1.00 indicates perfect correlation.

If there's absolutely no connection between the two sets of objects of Pearson r value is zero. A ratio r correlation near zero indicates that the relationship is quite weak.

The correlation coefficient can be defined as a statistic often used which not only provides a measure of how random variables are associated in a sample, but also has properties that closely relates to your line regression. It also could be defined as a statistical technique that determines the strength of linear relationship between two variables.

In addition, you can state as a measure of strength of the linear relationship between two sets of variables.

The correlation coefficient tells us whether the relationship is really significant. For this, the researcher uses the + – test to see if the relationship is significant. + Formula – to look at is:

t = with n – 2 degrees of freedom.

We will use the two-tailed test at 0.05 level of significance. The 0.05 level of significance for rejection of the null hypothesis, a researcher who is willing to accept the probability that it is most likely less than five hundred, that the observed difference is due to sampling error. Therefore, the probability of making a an error rate is less than 0.05.

About the Author

ESEOGHENE IGBERAHARHA.   department of finance and banking, university of port harcourt, choba Rivers state.