The Impact of Financial Liberalisation on the Performance of Privatised Banks in Nigeria

Abstract

This study compares the pre and post privatisation performance of ten banks that experienced privatisation through public share offering during the first phase of the Nigerian's liberalisation policy. The study examines whether the financial and operating performance of the privatised banks improved after privatisation. The wilcoxon signed rank test was used as the principal method of testing for significant changes in profitability, operating efficiency, and dividend payout. We also used the wilcoxon two-sample test for our sub-sample, which involves a test on whether the mean difference in variable values between the privatised banks in our sub-sample is zero. The study documented significant increases in the mean levels of profitability, operating efficiency, and dividend payout. Even though capital investments ratio revealed a mixed result, our study documented sufficient evidence, which shows that the privatisation exercise is accompanied by profitability and efficiency gains on the part of the privatised banks. In order to determine the factors that are responsible for the success of the privatisation programme in Nigeria, we further sub-dividend the sample into whether the banks changed their chief executives after privatisation or not and whether the composition of the board of directors remain as it were before the privatisation programme. Most of the privatised banks witnessed a marked turnover in the composition of their board of directors after privatisation. Although, our study did not reveal any significant difference in terms of banks that change their chief executives and those that retained them after the privatisation, the impact of human capital on bank's performance cannot be undermined. In overall therefore, our results lend support to the proposition that privatised banks in Nigeria witnessed performance improvement following government's liberalisation programme.