ABSTRACT
This
paper reviews the perspective of banking sector reforms since 1970 to date. It
notes four eras of banking sector reforms in Nigeria, viz.: Pre-SAP (1970-85),
the Post-SAP (1986-93), the Reforms Lethargy (1993-1998), Pre-Soludo
(1999-2004) and Post-Soludo (2005-2006). Using both descriptive statistics and
econometric methods, three sets of hypothesis were tested: firstly that each
phase of reforms culminated in improved incentives; secondly that policy
reforms which results in increased capitalization, exchange rate devaluation;
interest rate restructuring and abolition of credit rationing may have had
positive effects on real sector credit and thirdly that implicit incentives
which accompany the reforms had salutary macroeconomic effects. The empirical
results confirm that eras of pursuits of market reforms were characterized by
improved incentives. However, these did not translate to increased credit
purvey to the real sector. Also while growth was stifled in eras of control,
the reforms era was associated with rise in inflationary pressures. Among the
pitfalls of reforms identified by the study are faulty premise and wrong
sequencing of reforms and a host of conflicts emanating from adopted
theoretical models for reforms and above all, frequent reversals and/or
non-sustainability of reforms. In conclusion, the study notes the need to
bolster reforms through the deliberate adoption of policies that would ensure
convergence of domestic and international rates of return on financial markets
investments.
table
of contents
Contents Pages
Title Page i
Certification page ii
Dedication iii
Acknowledgement iv
Abstract v
Table of contents vi
Chapter One
1.0 Introduction 1-2
1.1 Statement
of Problem 2-3
1.2 Historical Background 3-4
1.3 Objectives
of the Study 4
1.4 Research
Hypothesis 5
1.5 Significance
of Study 5
1.6 Definition
of Terms 6-7
1.7 Scope 7
1.8 Plan of Study 8
References 9
Chapter Two
2.0 Literature Review 10-12
2.1 Measurement of Financial Sector 12-16
2.2 An Overview of Nigerian Financial System 16-17
2.3 Structure of the Nigerian Financial System 17-19
2.4 The Development of Nigerian Banking Industry 19-21
2.5 Functions of Commercial Bank 21-24
2.6 Reforming the Banking Sector-Outcome 24-29
2.7 Objective of the Reform 29-31
2.8 Profitability of Nigerian Banks Post-Consolidation 31-36
2.9.0 Reforms: The Last Lap. a New Beginning 36-38
2.9.1 Banking and Finance 38-41
2.9.2 Banking Supervision 41-43
2.9.3 Bank Supervisors and Inspectors 43
2.9.4 Bank Supervision in Nigeria 43-44
2.9.5 Problems in the Banking System 44-49
2.9.6 The Core Principles of Basle 49-54
2.9.7 Conclusion and Recommendation 54
References 55-57
Chapter Three
Research
Methodology
3.1 Reforms and Banking Sector 58-64
3.2 Effects of Reforms on Real Sector Credit 64-65
3.3 Policy Reforms and Economic Performance 66-68
References 69
Chapter Four
4.1 Pitfalls of the Eras of Reforms 70
4.2 Faulty
Premise and Inappropriate Sequencing of Reforms 70-71
4.3 Conflicts Emanating from Adopted
Theoretical Model
for Reforms 71-73
4.4 Conflicts Emanating from Foreign Exchange
Market
Segmentation 73-74
4.5 Conflicts or Trade-offs in Fostering
Internal and
External
Balance via the Monetary Approach 74-75
4.6 Ambivalent Theoretical Underpinning of Reforms 75-76
References 77-78
Chapter Five
5.1 Future
Policy Options and Concluding Remarks 79
5.2 Getting
Domestic Interest Rates Right 79-80
5.3 Getting External Investment Opportunities Right 80-81
5.4 Concluding
Remarks 81
Bibliography 82-86
chapter 1
1.0 Introduction
There is a fair agreement in
the literature that economic reforms, especially what came to be tagged
structural adjustment programs (SAP), have almost always been mounted in
response to national financial distress whose foundation could be traced to
macroeconomic distortions (World Bank 1986). While such distress manifest
mainly as deep economic deterioration (stagflation and huge external debts),
distortions are often evident in the pursuit of unsustainable fiscal, monetary
and exchange rates policies in addition to widespread government intervention
in enterprises that can best be handled by the private sector. In general,
several analysts believe that economic mal-adjustment is associated with policy
pursuits which depart from free market pricing policies (Chiber, et al 1986;
Ray 1986). Economic reforms are therefore seen as pursuits of fiscal reforms
and market liberalizations, which focus on extensive privatization of state
owned enterprises as well as liberalization of financial and foreign exchange
markets, with the government limited to provision of the right enabling
environment for a private sector led growth.
There is a consensus in the
literature that at the heart of economic reforms is the need to address a
two-fold task: restructure or get policy incentives right as well as
restructure key implementation institutions. 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.
As part of the financial sector, banking sector reforms is that aspect which
focuses mainly on getting incentives right for the banking sector to take the
lead role in empowering the private sector to contribute more to economic
growth.
In Nigeria, we recognize four
phases of banking sector reforms since the commencement of SAP. The first is
the financial systems reforms of 1986 to 1993 which led to deregulation of the
banking industry that hitherto was dominated by indigenized banks that had over
60 per cent Federal and State governments’ stakes, in addition to 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 which necessitated
another round of reforms, designed to manage the distress. The third phase
began with the advent of civilian democracy in 1999 which saw the return to
liberalization of the financial sectors, accompanied with the adoption of
distress resolution programmes. This era also saw the introduction of universal
banking which empowered the banks to operate in all aspect of retail banking
and non-bank financial markets. The forth phase began in 2004 to date and it is
informed by the Nigerian monetary authorities who asserted 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.
Although these reforms have
been acclaimed to be necessary, it is however debatable if they yielded the
anticipated results. The objective of this paper therefore, is to assess the
relative effectiveness of the reforms as well as gauge the likely impact of the
outcomes on economic performance. Thereafter, the pitfalls which militated
against the effectiveness of the reforms would be identified and future policy
options recommended.
1.1 STATEMENT OF
PROBLEM
ASSESSMENT OF THE EFFECTIVENESS OF THE BANKING REFORMS ON THE NIGERIAN ECONOMY
