Banking Sector Reforms and the Performance of Commercial Banks in Nigeria
Journal of World Economic Research
Volume 4, Issue 3, June 2015, Pages: 45-60
Received: Dec. 12, 2014; Accepted: Dec. 24, 2014; Published: May 16, 2015
Views 16339      Downloads 383
Authors
Uduak M. Ekong, Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Nigeria
Ubong E. Udonwa, Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Nigeria
Article Tools
Follow on us
Abstract
The study investigated the performance of Commercial Banks in Nigeria after Banking Sector Reforms. In order to be thorough, the performance of Commercial banks before the Reforms was also investigated. Here we analyze the relationship using Error Correction Mechanism and Chow test over the period 1970-2012. The Variables used were obtained from the banking system. The study found out that the reforms brought about some important changes in Commercial Banks Performance in Nigeria. Specifically, the level of profit (measured by NIM) continues to improve above single digit of 9.17 in 1996 to 16.18 in 2004 and a peak of 20.96 in 2011. This translates into a mean profit of 2.40 recorded in the deregulated period as against 1.54 recorded in the regulated period. Commercial Banks may improve in performance in terms of profitability, but may not really impact on the real economy at least on the short run. The study also shows that much of the benefits to commercial banks in credit creation in the economy will be derived at a price of time. A number of possible policy menu capable of bringing about a sustained Commercial Banks Performance in Nigeria in years following the study have been prescribed in the study.
Keywords
Commercial Bank Performance, Profitability, Net Interest Margin, Baking Sector Reforms, Nigeria
To cite this article
Uduak M. Ekong, Ubong E. Udonwa, Banking Sector Reforms and the Performance of Commercial Banks in Nigeria, Journal of World Economic Research. Vol. 4, No. 3, 2015, pp. 45-60. doi: 10.11648/j.jwer.20150403.11
References
[1]
Abbas, K. And Malik, M. H. (2010). Impact of Financial Liberalisation and Deregulation on Banking Sector in Pakistan, Pakistan Institute Of Development Economics (PIDE) Working Paper No 64, Islamabad.
[2]
Aburime, U. T. (2008). Impact of Ownership Structure on Bank Profitability in Nigeria, Available online at www.feb.uva.nl/rof/58 ,16/05/2013.
[3]
Adams, S. and Agbemade, J. (2012).Financial Liberalization and Banking Sector Performance in Ghana, African Journal of Business Management, 6(47):11598-11608.
[4]
Adegboyega, O. I. (2012). Mergers and Acquisitions and Banks Performance in Nigeria, Jorind, 10(2): 338-347.
[5]
Adhikary, D. K., Pant, R. & Dhungana, B. R. (2007). Study on Financial Sector Reforms in Nepal (Overall Impact and Public Ownership of Financial Institutions), Paper prepared for South Asian Network of Economic Institutes (SANEI), New Baneswore, 18-21 June.
[6]
Allen, F., Carletti, E., Cull, R., Qian, J., Senbet,L. and Valenzuela, P. (2012). Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya, Forthcoming in NBER Volume on African Economic Successes, Available online at cadmus.eui.eu, 05/05/2013.
[7]
Ani, W. U., Ugwunta, D. O., Ezeudu, I. J. and Ugwuanyi, G. O. (2012). An Empirical Assessment of the Determinants of Bank Profitability in Nigeria: Bank Characteristics Panel Evidence, Journal of Accounting and Taxation , 4(3): 38-43.
[8]
Antwi-Asare, T. O. and Addison, E. K. Y. (2000). Financial Sector Reforms and Bank Performance in Ghana, Overseas Development Institute, University of Ghana : 81-86.
[9]
Aremu, M. A., Ekpo, I. C. And Mustapha, A. M. (2013) Determinants of Banks’ Profitability in a Developing Economy: Evidence from Nigerian Banking Industry, Interdisciplinary Journal Of Contemporary Research In Business, 4(9): 155-181.
[10]
Asogwa,R.(2005)."Assessing the Benefits and Costs of Financial Sector Reform in Nigeria:An Event Study Analysis", Selected Papers for 46th Annual Conference, Nigerian Economic Society, 23-25 August
[11]
Balogun, E. D. (2007). Banking Sector Reforms and the Nigerian Economy: Performance, Pitfalls, and Future Policy Options, Munich Personal RePEc Archive (MPRA) Paper No. 3804, Available online at http://mpra.ub.uni-muenchen.de/3804/, 22/03/2014.
[12]
Bansal, S. And Gupta S. K.(2012). A Study Of Banking Sector In India After Reforms, International Journal Of Research In It & Management (Ijrim), 2 (7): 40-48.
[13]
Bhattacharyya, A. and Pal, S.(2011). Financial Reforms and Technical E_ciency in Indian Commercial Banking: A Generalized Stochastic Frontier Analysis, Available online at http://www.shsu.edu/~eco_www/, 17-06-2014.
[14]
Bhatti, G. A. and Hussain, H.(2010). Evidence on Structure Conduct Performance Hypothesis in Pakistani Commercial Banks, International Journal of Business and Management, 5(9): 174-187.
[15]
Brissimis, S. N., Delis, M.D., and Papanikolaou, N.I. (2008). Exploring the Nexus between Banking Sector Reforms and Performance :Evidence from newly acceded EU Countries, Bank of Greece working paper no 73, available online @ www.bankofgreece.gr, visited 21/03/2014simi
[16]
Brownbridge, M. (1996). Financial Policies and the Banking System in Zambia, Available online at http://www.ids.ac.ukfiles/wp32, 09-05-2013.
[17]
Burki A A and Nazi, G. S. K. (2006). Impact of Financial Reforms on Efficiency of State-owned, Private and Foreign Banks in Pakistan, CMER working paper no 06-49, Lahore, Lahore University of Management Sciences.
[18]
Central Bank of Nigeria (2005a) A Case Study of Distressed Banks in Nigeria.
[19]
Central Bank of Nigeria (2005b) Banking Supervision Annual Reports: 10.
[20]
Desa, K. A. (2003). An Analysis of the Determinant of Commercial Banks Profitability in Malaysia, Unpublished Ph. D Thesis, Perpustakaan Sultanah Bahiyah Universiti Utara, Malaysia, Available online at etd.uum.edu.my/1018/, 26-05-2013
[21]
Dilshad, M. N. (2013). Profitability Analysis of Mergers and Acquisitions: An Event Study Approach, Journal of Macrothink Institute Business and Economic Research, 3 (1): 89-125.
[22]
Ekong, U. M and Ikot, A. S. (2012). Nigerian Banks Potentials and NEEDS: A Nexus for Pro-poor Growth in Nigeria, unpublished seminar paper of the Faculty of Education, University of Uyo.
[23]
Ezirim, C.B.and Muoghalu, M. D. (2004). Financial Reforms and Commercial Banks Operations in Nigeria: AComparison of Two Decades, Union Digest, 8(2): 24-50.
[24]
Fu, X. and Heffernan, S.(2005). China: The Effects of Bank Reform on Structure and Performance, Paper presented at the Annual Wolpertinger Conference (European Association of University Teachers in Banking and Finance), Cass Business School, City University-London, 31 August – 3 September.
[25]
Gargouri, I. (2013). Efficiency of Tunisian Commercial Banks According to the Intermediation Approach, Canadian Center of Science and Education, International Journal of Economics and Finance, 5 (5): 190-203.
[26]
Garza-Garcia, J. G. (2011). Determinants of Bank Performance in Mexico: Efficiency or Market Power, Centre for Global Finance, Working Paper Series No 03, Bristol Business School, University of the West of England, United Kingdom.
[27]
Gupta, V. K.and Aggarwal, M., (2012). Performance Analysis of Banks in India - Pre and Post World Trade Organization (General Agreement on Trade in Services), European Journal of Business and Management, 4 (3): 8-19.
[28]
Guru, B. K., Staunton, J.and Shanmugam, B.(2000). Determinants of Commercial Bank Profitability in Malaysia, Avialable online at web.usm.my/aamj/, 17-06-2014.
[29]
Hardy, D. C. and Patti, E. B. (2001). Bank Reform and Bank Efficiency in Pakistan, IMF Working Paper no 138, Available online at www.imf.org/external/pubs/ft/wp/2001/wp01138.pdf, 17-06-2014.
[30]
Heffernan, S. and Fu M. (2008a). Bank Productivity Changes in Two Asian Giants, Social Science Research Network, Available at http://ssrn.com/abstracts, 09-05-2013.
[31]
Heffernan, S. and Fu M. (2008b). The Determinants of Bank Performance in China, Available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1247713, 18-06-2014.
[32]
Huang, W. (2010). Banking Sector Reforms and Commercial Bank Performance in China, Nottingham University Business School Conference Paper, Ningbo China, Available online at http://www.ceauk.org.uk/2010-conference-papers/full-papers, 19-06-2014.
[33]
Iimi A, (2004). Efficiency in the Pakistani Banking Industry: Empirical Evidence after the Structural Reforms in the late 1990s, Pakistan Development Review, 42(1): 41-57.
[34]
Ikpefan, O. A.(2010). The Impact of Bank Capitalization in the Performance of Ngerian Banking Industry (1986-2006), The Journal Of Commerce 4(1): 24-39.
[35]
International Monetary Fund (2013).Nigeria: Financial Sector Stability Assessment, Publication Services, Washington, D.C., IMF Country Report No. 13/140, Available at www.imf.org, 10.03.2014.
[36]
Isu, H. O. (1991). Preventing Bank Failures in Nigeria in the Coming Decades: Some Imperatives, Nigerian Financial Review, 4 (2) : 35 – 43.
[37]
Jiang, C.(2008). Analysis of Bank Efficiency of Chinese Commercial Banks andthe Effects of Institutional Changes on Bank Efficiency, Unpublished Ph. D Thesis, Middlesex University, London, UK..
[38]
Jiang, C. and Yao, S.(2010). Banking Reform and Efficiency in China: (1995-2008), University of Nottingham research paper 2010/2011series.
[39]
Kamau, A. and Were, M. (2013). What Drives Banking Sector Performance in Kenya?. Global Business and Economics Research Journal, 2(4): 45-59.
[40]
Keovongvichith, P. (2012). An Analysis of the Recent Financial Performance of the Laotian Banking Sector during 2005-2010, International Journal of Economics and Finance, 4 (4): 148-162.
[41]
Kimera, N. S. (2011).Commercial Banks’ Investment In Loans And Treasury Bills and their Overall Profitability In Uganda, Unpublished M. Sc. Dissertation, Makerere University, Uganda.
[42]
Kiruri, R. M. (2013). The Effects of Ownership Structure on Bank Profitability in Kenya, European Journal of Management Sciences and Economics, 1(2): 116-127.
[43]
Kumbirai, M. and Webb, R. (2010). A financial Ratio Analysis of Commercial Bank Performance in South Africa, African Review of Economics and Finance, 2(1): 30-53.
[44]
Lin, C. and Kao, M. (2011). Does First Financial Reform in Taiwan Improve the Performance of Focused Financial Firms?, Available online at centerforpbbefr.rutgers.edu/2011PBFEAM/, 13-05-2013.
[45]
Lin, X. Zhang, Y. (2006). Bank ownership reform and bank performance in China, Journal of Banking & Finance, 10(1016):1-10.
[46]
Luo, D. (2009). Financial System and Reform of Chinese Commercial Banks, Unpublished Ph. D Thesis, University of Nottingham, England, United Kingdom.
[47]
Mahesh H. P, and Bhide, S. (2008), “Do Financial Sector Reforms Make Commercial Banks More Efficient? A Parametric exploration of the Indian Case”, The Journal of Applied Economic research. 2. (4): 416 -440. .
[48]
Mlachila, M. amd Chirwa, E. W. (2002). Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi, IMF Working Paper no 6, Available online at www.imf.org/external/pubs/ft/wp/2002/wp016.pdf, 13-04-2013.
[49]
Mogboyin, O., Asaolu, T. O. & Ajilore, O. T. (2012). Bank Consolidation Programme and Lending Performance in Nigerian Banking System: An Empirical Analysis with Panel data, The International Journal of Applied Economics and Finance, 6(3): 100-108.
[50]
Nawaz, M., Munir, S., Siddiqui, S. A., Ahad, T., Afzal, F., Asif, M. And Ateeq, M. (2012). Credit Risk And The Performance Of Nigerian Banks, Interdisciplinary Journal Of Contemporary Research In Business, 4 (7): 49-63.
[51]
Ningi, S. I. and Dutse, A. Y.(2008). Impact of Bank Consolidation Strategy on the Nigerian Economy, African Economic and Business Review, 6(2): 26-45.
[52]
Nzotta, S. M. and Okereke, E. J. (2009). Financial Deepening and Economic Development of Nigeria: An Empirical Investigation, African Journal of Accounting, Economics, Finance and Banking Research, 5(5): 52-66.
[53]
Odeleye, A. T. (2014). Pre-Consolidation and Post-Consolidation of Nigerian Banking Sector: A Dynamic Comparison, International Journal of Economics and Financial Issues, 4 (1): 27-34.
[54]
Ofanson, E.J., Aigbokhaevbolo, O. M., and Enabulu, G. O. (2010). The Financial System in Nigeria: An overview of Banking Sector Reforms, AAU JMS, 1 (1), 16-36.
[55]
Ofoegbu, O. I. & Iyewumi, A. T. (2013). Bank Consolidation and Deregulation Effects on the Level of Competition in the Nigerian Banking Industry, International Journal of Economic Policies and Theories, 3(1): 37-49.
[56]
Oladele, P. O., Abosede, A. J. and Akeke, N. I. (2012). A Post-Consolidation Assessment of Profitability in Nigerian Banks, Journal of Social and Development Sciences, 3(1): 1-5.
[57]
Olajide, O. T., Asaolu, T and Jegede, C. A.(2011). The Impact of Financial Sector Reforms on Banks Performance in Nigeria, The International Journal of Business and Finance Research, 5(1): 53-63.
[58]
Olaosebikan, B.(2009). Surveying Efficiencies of Nigerian Banks before and after the Minimum Capital Requirement Increase, Unpublished B.A. Thesis, llinois Wesleyan University, Bloomington, IIinois, United States of America.
[59]
Ongore, V. O., and Kusa, G. B.(2013). Determinants of Financial Performance of Commercial Banks in Kenya, International Journal of Economics and Financial Issues, 3 (1): 237-252.
[60]
Rajeev, M .and Mahesh, H. P. (2010).Liberalization and Productive Efficiency of Indian Commercial Banks: A Stochastic Frontier Analysis, Nagarbhavi, Bangalore, Institute for Social and Economic Change, Available online at www.isec.ac.in/WP, 10-05-2013.
[61]
Shah, D.(2007). Banking Sector Reforms and Co-operative Credit Institutions in Maharashtra: A Synthesis, Agricultural Economics Research Review, 20: 235-254.
[62]
Shankar, R. and Sanyal,P. (2007). What Drives Bank Performance? An Analysis for the Post-Reform Period in India, Available online at http://people.brandeis.edu/~psanyal/, 17-06-2014.
[63]
Simpasa, A. M. (2013). Competition and Market Structure in the Zambian Banking Sector, African Development Bank, Working Paper No. 168.
[64]
Uddin, S. M. S. and Suzuki, Y.(2011). Financial Reform, Ownership and Performance in Banking Industry: The Case of Bangladesh, International Journal of Business and Management, 6 (7): 28-39.
[65]
Ukoha O. O. and Nwabuko, O. J. (2006). Impact of ADP Promotional Activities on Cassava Production: A Case Study of Ikwuano Local Government Area of Abia State, Nigeria, Journal of Applied Chemistry & Agricultural Research, 9: 44-50.
[66]
Wen, W.(2010). Ownership Structure and Banking Performance: New Evidence in China, Unpublished Ph. D Thesis, Autonomous University of Barcelona, Cerdanyola del Vallès, Barcelona, Spain.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186