The Impact of Banking Reforms on the Profitability of Nigerian Banking Industry

Abstract

The recent reform in the Nigerian Banking system especially the consolidation exercise brought lots of changes into the financial system of Nigeria and had influence on bank interest rates, competition and transmission mechanism of monetary policy in so far as the increase in size and the opportunity for reorganization involved may either provide gains in efficiency that bear on marginal costs or give rise to increase in market power, or both together. The reform was introduced because of low capitalization, liquidation of banks, poor public perception, bank frauds, inability to attract or retain skilled manpower, poor remuneration and low investment in information technology and other major obstacles in the development and growth of banks in Nigeria. In spite of the steady growth of the local market, the Nigerian banking industry was underperforming when compared to Banking industries of other countries. Therefore, this study sought to examine the impact of the recent banking consolidation on the merger of UBA and Standard Trust PLCs and determine the impact of Bank share capital on the profitability of the banks before and after consolidation; determine the impact of the bank share capital on the total net asset of the Banks before and after consolidation and examine the relationship between Bank share capital and the ability of the Bank to grant loans and advances before and after consolidation. The study adopted the ex- post facto research design to enable the use of secondary data for the period 2001-2005 pre-merger and 2006-2010 post mergers where Bank Share capital (BSC) was the independent variable and Profit after Tax (PAT), Total Net Assets (TNA) and Loans and Advances (LA) were the dependent variables.