Abstract
In this paper, the authors examined the efficiency of deposit money banks (DMBs) in Nigeria in three years after, during and before the 2004–2005 capital consolidation in Nigeria. This consolidation period was the last period the Central Bank of Nigeria implemented an official recapitalization policy of the deposit money banks in the country. The authors predicated the study on a modified intermediation and efficiency measurement frameworks. It utilizes deposits, fixed assets and employees as inputs, whose costs are interest payments, depreciation and staff expenses. Performing loans and advances, investments and liquid assets constituted the output variables. The authors computed the efficiency scores, using the Data Envelopment Analysis (DEA) approach. The data used were obtained from the DMBs that retained their identities and controlled over 75% of the banking industry’s total assets. They were purposively selected to maintain data consistency, and were size-classified by total assets. The findings show that small banks tend to be more cost efficient than medium and big banks. More so, medium sized banks tend to be more cost efficient than big banks, while big banks take the lead in cost efficiency score in post consolidation period. Cost efficiency of the banks was the highest during consolidation, followed by pre-consolidation and least in three years after consolidation.
Highlights
INTRODUCTIONThe report of an investigation carried out by the Central Bank of Nigeria (CBN) on the deposit money banks operating in Nigeria in mid and late 2009 post-consolidation period showed that ten banks out of the twenty-four banks in the country during this period had varying problems which included illiquidity, capital inadequacy and poor corporate governance
The findings show that small banks tend to be more cost efficient than medium and big banks
The report of an investigation carried out by the Central Bank of Nigeria (CBN) on the deposit money banks operating in Nigeria in mid and late 2009 post-consolidation period showed that ten banks out of the twenty-four banks in the country during this period had varying problems which included illiquidity, capital inadequacy and poor corporate governance
Summary
The report of an investigation carried out by the Central Bank of Nigeria (CBN) on the deposit money banks operating in Nigeria in mid and late 2009 post-consolidation period showed that ten banks out of the twenty-four banks in the country during this period had varying problems which included illiquidity, capital inadequacy and poor corporate governance. The need for re-optimization may call for such exercises This involves input and/or output responses to alterations in some factors, such as input and output prices which are exogenous in nature. There was a lot of branding and re-branding of products especially among those banks that were products of merger and acquisition. This was accompanied with excessive marketing activities, which were not really sound for the banks. One gap in the past studies is that available evidence on efficiency of banks in terms of size is mixed, probably due to differences in methodology and the workings of the economies. Studies on changes in efficiency of small, medium, and big banks in period shortly after, during and before consolidation are scanty in the literature. Following this introduction is the literature review in section one; theoretical framework and methodology in section two; discussion of findings in section three and the concluding remarks and recommendations in the last section
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