Abstract
Banking sector reforms is the deliberate policy measures adopted by the monetary authority to promote the safety, soundness, reliability and stability of the sector, in order to be able to deliver the expected goods by improving the economy. It is against this background the investigates that impact of bank sector reforms on Nigeria’s economics growth for the period which spanned from 1970 to 2014 using ARDL analysis. The period study was disaggregated into pre bank reforms period (1970-1985), reforms period (1986-2014) and pool period (1970-2014). Real Gross domestic product (GDP) was used as a proxy for economic growth regressed on some bank performance variables such as ratio of narrow money to broad money, loan deposit ratio, commercial bank credit to the private sector, cash reserve ratio and interest rate. The study found that the bank reformed has not impacted on the growth of the Nigerian economy. The study recommend that the government should ensure strict regulatory measures through the use of its monetary policies to regulate the banking sector and the Central Bank of Nigeria should continue with its banking sector reforms and encourage substantial credit allocation to the prioritized private sector.
Highlights
The theory of financial reform provides a useful account of how a smooth-functioning financial market provides high and sustained economic growth. [1] Fundamentally, financial reform or banking reform is the process of moving towards market-determined rate of interest as well as marketdetermined prices as opposed to government-regulated rate of interest [2] which may have a significant effect in enhancing growth by promoting a more efficient allocation of resources, encouraging a faster accumulation of physical and human capital and technological progress, and reducing production costs relating to transaction, information and monitoring
This is consistent with the apriori expectation. This finding indicates that credit to the private sector has a robust impact on the productive sectors which have a spillover effect on Nigeria economic growth. This result conform to Sesugh (2013) finings that there is statistical significance between Credit to Private Sector and Real Gross Domestic Product proxied for economic growth and concluded that The Nigerian banking sector should increase the amount of credit given to private sector; this will in turn contributes greatly to the growth of the Nigerian economy
Real Gross domestic product (GDP) was used as a proxy for economic growth regressed on some bank performance variables such as ratio of narrow money to broad money, loan deposit ratio, commercial bank credit to the private sector, cash reserve ratio and interest rate
Summary
The theory of financial reform provides a useful account of how a smooth-functioning financial market provides high and sustained economic growth. [1] Fundamentally, financial reform or banking reform is the process of moving towards market-determined rate of interest as well as marketdetermined prices as opposed to government-regulated rate of interest (known as interest rate ceiling) [2] which may have a significant effect in enhancing growth by promoting a more efficient allocation of resources, encouraging a faster accumulation of physical and human capital and technological progress, and reducing production costs relating to transaction, information and monitoring. Interest for instance, Nigerian economy has embarked upon several financial reforms since adoption of structural adjustment programme (SAP) in the mid 80s such as banking sector deregulation, flexible exchange rate including facilitating the new entry of domestic and foreign banks, the gradual deregulation of lending and deposit interest rates, facilitating the use of credit and debit cards, updating payment technologies like ATM machines and electronic transfer of deposits, expanding a variety of internet banking services like e-banking and mobile banking technology, enhancing telecommunications infrastructure, supporting their financial sector with such measures like tax-free environment. In recognition of the important roles of banking sector in driving economic growth and development, the Nigerian government and monetary authority embarked on five distinct phases of banking sector reforms
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