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, bankingconsolidation, 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.