Empirical analysis of bank recapitatlisation in Nigeria (1986-2011)

Abstract

In 1986, Nigeria introduced a structural adjustment programme (SAP) and one of the policy implications of the programme was the deregulation of the economy. And so the banking sector was also deregulated. This led to sudden increase in the number of banks. However, distress soon hit the financial sector of the economy. In order to avoid the bitter consequences of bank failure, the government established the Nigeria Deposit Insurance Corporation (NDIC) to augment the regulatory power of Central Bank of Nigeria (CBN) as a watch dog over banks and ensure stable, safe and sound system of the banking sector. Various attempts aimed at revamping the banking sector, ranging from recapitalization to outright liquidation failed.In July 2004, a new method aimed at salvaging the banking sector was announced by the CBN. This method includes banking sector reform and bank consolidation. The main thrust of this study is to examine the impact of consolidation on Nigeria economy. To achieve this, SPSS Version 19 econometric software package regression method was adopted. The ordinary least squares (OLS) analytical technique was applied to estimate the empirical relationship between the dependent and independent variables. The study also carried out chow test in order to determine the structural stability of the regression. The study revealed that Nigeria bank consolidation has not impacted significantly on Nigeria’s economic growth under the study period. The study therefore recommended that banking regulations such as bank consolidation needs to be a component of total reform framework of monetary authority to ensure effectiveness in Nigeria banking sector performance.