ABSTRACT
The study
examines the effects of Banking Sector Reforms on Nigerian economic growth and
development. Data used for the study were collected from the statistical
bulletin of the Central Bank of Nigeria and National Bureau of Statistics for
various years covering the period from 2000- 2011 . Data collected were
analyzed using ordinary least square statistical techniques. Specific findings
from the study indicate that there is a significant relationship between
banking sector reform and the performance of the banking industry. Moreover,
that banking sector reform contribute to credit to the private sector, loan to
deposit ratio and significantly total asset of the commercial banks in Nigeria.
The study recommends the need for government to develop our financial sector
towards greater effectiveness and efficiency. Also, there is need to revisit
the Structural Adjustment Programme with a view to enhance efficiency by
altering the structure. More generally, the Nigerian experience shows that
although the long run positive benefits of financial liberalization are
indisputable, the short-term costs may be substantial if the conditions needed
for a deregulated financial system to work properly are not in place before a
step in this direction is taken.
TABLE OF CONTENTS
Title page
Certification
Approval page
Dedication
Acknowledgment
Abstract
Table of content
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope and Limitation of the
Study
1.8 Organization of Study
CHAPTER TWO: LITERATURE REVIEW
2.1 Theoretic Framework
2.2 Sector Reforms in Nigeria
2.3 Financial Sector Reforms
and Development
2.4 Financial Sector Reforms
and Interest rate Regime
2.5 Condition Facilitating
Banking Sector Reforms
2.6 Dual Effects of Financial Sector Reform
2.7 Financial Sector Reforms
and banking Performance
2.8 Financial Sector and
economic Growth
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Restatement of Research
Hypotheses
3.4 Model Specification
3.5 Population of study
3.6 Sample and sampling Method
3.7 Source of Data
3.8 Statistical Test
3.9 Method of Data Analysis
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION OF RESULTS
4.1 Introduction
4.2 Model Specification
4.3 Estimation Techniques
4.4 Data Presentation
4.5 Discussion of Results
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Banking reforms are viewed as
government intervention in the banking industry to provide a panacea for
existing anomalies in the banking sector. Countries reform their banking
sectors for a number of reasons, including structural, capitalization and
ownership issues (Ogbunuka, 2005). Most importantly, banking reforms are geared
towards financial development in: all ramifications and this would inevitably
boost economic performance.
According to Ajayi (2005), 'banking
reforms involve several elements that are unique to each country based on historical,
economic and institutional imperatives.
Banking reforms are implemented to enhance the intermediation role of
banks. The reforms ensure that banks are
well positioned to greatly mobilize savings and optimally allocate these
mobilized savings in form of credit to profitable investments. These investments are of cognizance to the
development process of a nation as provided in the framework of the dual-gap
analysis.
Banking is dynamic and it has evolved
over the years changing with developments and the needs of the society. In Nigeria, banking in its modern form
started in 1892 when African Banking Corporation (ABC) commenced formal banking
business in the country. African Banking Corporation (ABC) was later changed to
British West Africa, known today as First Bank of Nigeria Plc. (Somoye, 2008).
The period 1927 to 1951, recorded a
boom in the establishment of indigenous banks, which was followed by a burst as
twenty-two of the 25 indigenous banks failed within the period. The bank
failure of this era resulted from the absence of banking regulation, inadequate
capital, paucity of qualified personnel, poor credit administration etc. The
need, thus, arose for a framework for the regulation and supervision of banking
business in Nigeria. That gave rise to the enactment of the Banking Ordinance
of 1952. Subsequently efforts at strengthening
the regulatory framework resulted in the enactment of the following banking
legislations, The Central Bank of Nigeria ACT of 1958, The of 1969, Nigeria Deposit
Insurance Corporation Act of 1988, The CBN ACT of 1991, which also amended and
repealed the Act of 1958, Banks and other financial institutions Act of 1991,
which also amended and repealed the Banking Act of 1969. (Somoye, 2008).
In the last decades, banking sector
reform policies have been implemented in a wide range of developing countries.
Reforms are predicated upon the need for reorientation and repositioning of an
existing status quo in order to attain an effective and efficient' state. There
could be fundamental bottlenecks that
may inhibit the functioning of institutions for growth and its achievement of
core objectives in the drive towards enhancing and social the economic arid social imperatives of
human endeavour. Carried out through either government institutions or private
enterprises, reforms become inevitable in the light of the global dynamic
exigencies and emerging landscapes. (Azeez and Ojo, 2012).
The last two decades have witnessed
several significant reforms and developments in Nigeria financial services
sector. As a result of the various financial sector reforms carried out since
the late 1980s, the nation's banking system has undergone remarkable changes in
terms of the number of institutions, ownership structure, as well as depth and
bread of the market. The reform had been
influenced largely by challenges posed - by deregulation, globalization, technological
innovations, and adoption of supervisory and prudential requirement that
confirms to international standard, (Azeez and Ojo, 2012).
In Nigeria, there were four phases of
banking sector reforms since the commencement of SAP (Structural Adjustment
Programme). The first is the financial
system reforms of 1986 to 1993 which led to deregulation
of the banking industry that hitherto was dominated by indigenized banks
that had over less percent federal and state government stakes, in addition, credit,
interest rate and foreign exchange policy reforms. The second phase began in the late 1993-1998, with the re-introduction of
regulations. During this period, the
banking sector suffered deep financial
distress that necessitates another round of reforms de-signed to manage this distress. The third phase began with
the advent of civilian democracy in
199 which saw the return to liberalization of the financial distress which necessitated another round of
reforms, designed to manage. This era also saw
the introduction of Universal banking which empowered the banks to operate in all aspect of retail banking' and
non-banking financial markets. The fourth phase began in 2004 to date and it is informed by the Nigerian Monetary
Authorities who assented that the
financial system was characterized by structural and operational weaknesses and that their catalytic role in
promoting private sector led growth could
be further enhanced through a more pragmatic reform (Balogun, 2007).
The current reforms are part of the
broader and 'on-going national economic reforms. The primary objective of the
reforms is to guarantee an efficient and sound financial system, the reforms
are designed to enable the bank system develop the required renitence to
support the economic development of the nation by efficiency performing its functions,
as the fulcrum of financial intermediation (Lemo, 2005). Thus the reforms were to ensure the safety of
depositor's money position banks to play active developmental roles in the
Nigeria economy and become major players in the sub-regional and global financial markets. Although these reforms
have been acclaimed to be necessary it is however debatable if they yielded the
anticipated resulted. The thrust of this
study therefore, is to assess the effect of banking sector- reform and
"impact of banks"
'performance in Nigeria.
1.2 Statement
of Problem
Over the years, the banking sector in
Nigeria has been unable to significantly support the long-term financial needs
of the real sector. This is 'in spite of the fact the growth of the national
economy hinges on the extent to which the real sector is effectively supported
by the banking and finance sector, which playa catalytic role in the growth
process. Most investments in the real sector are of medium to long- term nature
to mitigate the financial weakness in the economy the best practice is to
imbibe financial sector reform or banking sector reform in most depressed
economy as experienced in Nigeria over the decades. (Soludo, 2005).
Banking sector reform and its
sub-component, banking consolidation,
has resulted from deliberate policy responses to correct perceived "or
impending banking sector crises and subsequent failures. A banking crisis can be triggered by the
preponderance of weak banks characterized by persistent illiquidity,
insolvency, under capitalization, high level of non-performing loans and weak corporate governance among
others, as observed in the Nigeria case (Uchendu, 2005). Added to this, highly
open economies, especially, those with weak financial infrastructure can be
very vulnerable to banking crises emanating from other jurisdiction through the
contagion effect. A combination of many of these weak elements could jeopardize
the health of the' financial system. Similarly,
Abdullahi (2012) and Okoroji (2013) perceive that the cause of distress in the banking sector has often been
attributed awkward supervision and weak framework for policy design and implementation.
At, the heart of economic' reforms therefore is the need to address a two-fold
problem: restructure or get policy incentives right as well as restructure key
implementation institutions such as Banking Sector. Financial sector reforms is
that aspect of economic reforms which focus mainly on restructuring financial sector
institutions (regulators and operators) via institutional and policy reforms.
1.3 Objectives
of the Study
The primary objective of the study is to examine the Banking sector reforms on their
performance in Nigeria. The specific objectives are as follows:
I. To
examines the role of-the banking system in the economy
II. Identify
the rationales for banking system Nigeria
III. Examine
the outcomes of financial sector reforms in Nigeria.
IV. Assess the impacts of reforms on savings
mobilization, growth m real interest rates and other economic development
indices.
V. Ascertain the nature and magnitude of the
contribution of reforms to the investments and the growth of Nigeria economy
over periods.
1.4 Research Questions
In order to examine the effect of
Banking sector reforms and their performance on the economy of Nigeria, the
following questions are relevant to this study.
I. What
impacts has banking sector played on the economy of Nigeria?
II. What
are the rationales for banking sector reform in Nigeria?
III. Will
the outcome and impact of financial sector reforms in Nigeria?
IV. What are the effects of financial sector
reforms on saving mobilization real interest rates and economic development?
V. Will the reform magnitudes has multiplier
effect on investments and real sector of the economy?
1.5 Research Hypotheses
The following hypotheses are
formulated for the study.
Hypothesis One
H0: There is no
significant relationship between banking sector reform and banks
performance in Nigeria.
H1: There is significant relationship between
banking sector reform and banks performance in Nigeria.
Hypothesis Two
H0: There is no significant relationship between
Banking sector reforms and growth of the real sector in Nigeria
H1: There is significant relationship
between Banking sector reforms and growth of the real sector in Nigeria
Hypothesis Three
H0: There is no significant relationship between
Banking sector reforms and growth of the private sector investment in Nigeria.
H1: There is significant relationship
between Banking sector reforms and growth of the private sector Investment in
Nigeria
1.6 Significance
of the Study
For more than four decades after
independence, the Nigeria financial system was repressed, as evidenced by
ceiling on interest arid credits expansion, selective credits policies, high reserve
requirements, and restriction on entry into the banking industry. Thus
situation inhibited the functioning of the financial system and especially constrained
its ability to mobilize savings and
facilitates productive investment
The research study will be significant to several groups of people on Nigerian economy
these include the policy makers that banking sector reform could reinvigorate
the economy from the shackles of depression; thus, investors will also be
highlighted about the positives effects of banking sector reform in Nigeria,
with this, individual savers in the society will be rest assured about their
investment and saving in various batiks. Finally it will contribute to
knowledge to current articles and help upcoming researchers in benefiting from
making references from the research pieces.
The study is thus unique; in that
will riot only x-ray the reasons for financial sector reform. It will also
highlight the outcomes of financial sector reforms in Nigeria with a view to validating its impact on savings mobilization growth in interest rates, and other
economic development indices in the last years of current banking sector reform. This
study will therefore contribution to knowledge and also provide a basis
for further research development.
1.7 SCOPE AND
LIMITATION OF STUDY
This research work will cover the pre-reform
and the post-reform periods of the
Central Bank of Nigeria on reforms
and consolidation of the commercial banks in
Nigeria.
1.8 ORGANIZATION
OF THE STUDY
The study will be organized into five
main chapters. Chapter one provides the introductory part of the study and
includes the statement of the problem, objectives of study, research questions,
significance of study, research hypotheses, methodology of study, scope and
limitation of study and organization of study.
Chapter two provides literature
review and theoretical framework to this -study.
Chapter Three focused on research
methodology and technique of data collection. Chapter four provides the presentation
and analysis of data. Also, it includes the test of hypotheses and finally
chapter five which is the concluding part of the research work includes;
summary of findings, conclusion and recommendations of the study. However,
suggestion for further research maybe added in this part.
REFERENCES
Ogbunuka, U.M. (2005), "Banking
Sector Reforms and Bank Consolidation: The
Experience
of Turkey", CBN Bullion, Vol.29 (2),
April-June 2005.
Ajayi, M. (2005), "Banking
Sector Reforms and Bank Consolidation: Conceptual
Framework",
CBN Bullion, Vol. 29(2), April-June 2005
Lemo, T. (2005), "Regulatory
Oversight and .Stakeholder Protection", Paper
Presented at the BGL
mergers and Acquisitions Interactive Seminar held at Eko Hotels and Suites,
Victoria Island, June 24
Somoye, R.O. (2008), "The"
Performance of' C6trimercial Banks In post
Consolidation Period in
'Nigeria: An Empirical Review". European
Journal of Economics, Finance and Administrative Sciences ISSN 1450-227
Issue 14 Pp. 63-64.
Oke, M.O., B. A. Azeez (2012),
"A Time Series Analysis on the Effect of Banking
Reforms on Nigeria's Economic
Growth”. International Journal of
Economics and Research ISSN; 2229-6158. Vol. 3 Pp.26-37
Balogun B.D. (2007), A Review of
Soludo's Perspective of Banking Sectorreforms
in Nigeria: Online http://mpra.ub.uni-muenchen.de/3803/MPRAPaper No. 3803, posted 07.; November 2007/30:28
Okoroji U. W (2013) "Nigeria's Banking
Reform above the Curve". This day
News
paper