Banking Industry Consolidation in Nigeria: Regulatory Challenges and Efficiency Issues.

Ugwunze, Ifeoma (2007) Banking Industry Consolidation in Nigeria: Regulatory Challenges and Efficiency Issues. [Dissertation (University of Nottingham only)] (Unpublished)

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The Banking Industry has embarked on a trend toward consolidation that is expected to continue into the future. There are mergers that have transformed regional banks into national banking powerhouses with a significant impact on shareholders, customers and communities involved. Performance evaluation of the banking sector in Nigeria has assumed primal importance due to intense competition, greater customer demands and banking reforms. The first phase of the reforms constitute strengthening and consolidating the banking system which is designed to ensure a diversified, strong and reliable banking sector which will ensure the safety of depositors money and play active developmental roles in the Nigerian economy. The Nigerian Banking sector remains very marginal relative to its potentials and in comparison to other countries even in Africa.Also,the inability of the banking system to voluntarily embark on consolidation in line with the global trend has actually necessitated the need to consider the adoption of appropriate legal and supervisory frameworks as well as a comprehensive incentive package to facilitate mergers and acquisition (M&A) in the sector as a crisis resolution option and to promote the soundness, stability and enhanced efficiency of the system.

The Challenges on the part of banks are quite enormous. Banks are expected to imbibe best practice corporate governance, improve self-regulation, institute IT-driven culture, enhance the capital base and seek to be competitive in today's globalizing world. On the part of the regulatory authorities, they would further streamline the regulatory framework and strengthen the supervisory capacity to ensure a sound and efficient system. The goal of the reforms is to help the banks become stronger players, and in a manner that will have to ensure prolonged existence and thus higher returns to shareholders over time.

This Research uses a non-parametric frontier approach, Data Envelopment Analysis (DEA) as well as unique bank-by-bank balance sheet and income statement to investigate the efficiency of the Nigerian Commercial Banking industry over the period 2001-2006.We compare the traditional intermediation approach with the recently proposed(in the context of DEA) profit-oriented approach. Our results indicate that higher capitalization, loan activity and market power increase the efficiency of banks and the differences between the efficiency scores obtained through the profit-oriented model and the ones developed through the intermediation approach are in general small.Additionally, consolidation in the financial sector has been beneficial in order to reap economies of scale.Also, various areas needing additional research are outlined.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 19 Nov 2007
Last Modified: 21 Mar 2022 16:04

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