An Assessment of the Impacts of Banking Sector Reforms in Nigeria

Abstract

We assess the impacts of banking sector reforms on the development of the financial sector and growth of the economy over the period 1970-2010. First, we test for the stationary state of our data using the Levin, Lin and Chu t* stationary test. The test results reveal that all the variables are stationary at their fist difference. Second, we employed the Johansen co integration test to investigate the existence of a long run relationship among the variables; the results indicated the existence of a 2 co integrating equations among the variables. Third, we developed an OLS models to specifically assess the impacts of various banking sector reforms undertaking in the country on the development of the financial sector as well as increasing the growth rate of the economy. Within this framework, we found out that the overall banking reforms have not been able to improve the indices of the banking sector in order to trigger development in the financial sector and growth of the economy. The liberalization of the interest rate which is one of the key elements of the reform was still found weak in stimulating development in the financial sector and growth of the economy. More also, the size of banks which is represented by CABB indicated that despite the myriads of reforms they are not still large enough to propel growth of the economy and development in the financial sector. Therefore, we recommended the establishment of a stable financial and macro economic sector by reducing the inflationary pressures through the reduction in fiscal deficits and the tightening of monetary and credit policies before the introduction of any reforms measure as well as the restructuring of the existing currencies should be carried out at the early stage of the reform programme. In additions, time lag should be permitted to exist from one reform period and the next reform period as well as there should be policy consistency. Furthermore, the monetary authority should not rely excessive on the interest rate to trigger development in the banking sector as well as growth to the real sector.