Pre-Consolidation and Post-Consolidation of Nigerian Banking Sector: A Dynamic Comparison

Abstract

The Central Bank of Nigeria’s (CBN) recent reform to consolidate the banking sector through drastic increase to #25billion as minimum capital base of any bank led to a remarkable reduction in the number of banks from 89 to 24 in 2005; changed their mode of operations and their contributions to the nation’s economic development. Drawing on original research on consolidation of banking sector, this study examined the impact of consolidation on performance of Nigerian banks for the period 1999 to 2011. It employed Chow test; a parameter stability test which showed that there was parameter instability after the consolidation. System GMM (generalized methods of moments) estimation was further used to ascertain the directional and magnitudinal (size) impact of consolidation on the banks’ efficiency. With emphasis on earnings per share as a proxy for consolidation, it is inferred that Nigerian banking consolidation exercise did impact their efficiency positively. Keywords: consolidation; reform; Chow test; dynamic panel; endogeneity; efficiency JEL Classifications: G21; G28; G29