ABSTRACT
This paper reviews the perspective of banking sector reforms since 1970 to date. It notes four eras of banking sector reforms in Nigeria, viz.: Pre-SAP (1970-85), the Post-SAP (1986-93), the Reforms Lethargy (1993-1998), Pre-Soludo (1999-2004) and Post-Soludo (2005-2006). Using both descriptive statistics and econometric methods, three sets of hypothesis were tested: firstly that each phase of reforms culminated in improved incentives; secondly that policy reforms which results in increased capitalization, exchange rate devaluation; interest rate restructuring and abolition of credit rationing may have had positive effects on real sector credit and thirdly that implicit incentives which accompany the reforms had salutary macroeconomic effects. The empirical results confirm that eras of pursuits of market reforms were characterized by improved incentives. However, these did not translate to increased credit purvey to the real sector. Also while growth was stifled in eras of control, the reforms era was associated with rise in inflationary pressures. Among the pitfalls of reforms identified by the study are faulty premise and wrong sequencing of reforms and a host of conflicts emanating from adopted theoretical models for reforms and above all, frequent reversals and/or non-sustainability of reforms. In conclusion, the study notes the need to bolster reforms through the deliberate adoption of policies that would ensure convergence of domestic and international rates of return on financial markets investments.
table of contents
Contents Pages
Title Page i
Certification page ii
Dedication iii
Acknowledgement iv
Abstract v
Table of contents vi
Chapter One
1.0 Introduction 1-2
1.1 Statement of Problem 2-3
1.2 Historical Background 3-4
1.3 Objectives of the Study 4
1.4 Research Hypothesis 5
1.5 Significance of Study 5
1.6 Definition of Terms 6-7
1.7 Scope 7
1.8 Plan of Study 8
References 9
Chapter Two
2.0      Literature Review                                                                      10-12
2.1      Measurement of Financial Sector                                                12-16
2.2      An Overview of Nigerian Financial System                            16-17
2.3         Structure of the Nigerian Financial System                        17-19
2.4         The Development of Nigerian Banking Industry                       19-21
2.5         Functions of Commercial Bank                                                 21-24
2.6         Reforming the Banking Sector-Outcome                               24-29
2.7         Objective of the Reform                                                      29-31
2.8         Profitability of Nigerian Banks Post-Consolidation            31-36
2.9.0      Reforms: The Last Lap. a New Beginning         36-38
2.9.1      Banking and Finance                                                        38-41
2.9.2      Banking Supervision                                                   41-43
2.9.3      Bank Supervisors and Inspectors                                                     43
2.9.4      Bank Supervision in Nigeria                                                          43-44
2.9.5      Problems in the Banking System                                         44-49
2.9.6  The Core Principles of Basle                                                              49-54
2.9.7  Conclusion and Recommendation                                                         54
References                                                                                     55-57
Chapter Three
Research Methodology
3.1         Reforms and Banking Sector                                               58-64
3.2         Effects of Reforms on Real Sector Credit                                      64-65
3.3         Policy Reforms and Economic Performance                      66-68
References                                                                                            69
Chapter Four
4.1         Pitfalls of the Eras of Reforms                                                 70
4.2 Faulty Premise and Inappropriate Sequencing of Reforms 70-71
4.3 Conflicts Emanating from Adopted Theoretical Model
for Reforms 71-73
4.4 Conflicts Emanating from Foreign Exchange Market
Segmentation 73-74
4.5 Conflicts or Trade-offs in Fostering Internal and
External Balance via the Monetary Approach 74-75
4.6      Ambivalent Theoretical Underpinning of Reforms                       75-76
References                                                                                                  77-78
Chapter Five
5.1 Future Policy Options and Concluding Remarks 79
5.2 Getting Domestic Interest Rates Right 79-80
5.3      Getting External Investment Opportunities Right                          80-81
5.4 Concluding Remarks 81
Bibliography                                                                                                         82-86
chapter 1
1.0Â Â Introduction
There is a fair agreement in the literature that economic reforms, especially what came to be tagged structural adjustment programs (SAP), have almost always been mounted in response to national financial distress whose foundation could be traced to macroeconomic distortions (World Bank 1986). While such distress manifest mainly as deep economic deterioration (stagflation and huge external debts), distortions are often evident in the pursuit of unsustainable fiscal, monetary and exchange rates policies in addition to widespread government intervention in enterprises that can best be handled by the private sector. In general, several analysts believe that economic mal-adjustment is associated with policy pursuits which depart from free market pricing policies (Chiber, et al 1986; Ray 1986). Economic reforms are therefore seen as pursuits of fiscal reforms and market liberalizations, which focus on extensive privatization of state owned enterprises as well as liberalization of financial and foreign exchange markets, with the government limited to provision of the right enabling environment for a private sector led growth.
There is a consensus in the literature that at the heart of economic reforms is the need to address a two-fold task: restructure or get policy incentives right as well as restructure key implementation institutions. Financial sector reforms is that aspect of economic reforms which focus mainly on restructuring financial sector institutions (regulators and operators) via institutional and policy reforms. As part of the financial sector, banking sector reforms is that aspect which focuses mainly on getting incentives right for the banking sector to take the lead role in empowering the private sector to contribute more to economic growth.
In Nigeria, we recognize four phases of banking sector reforms since the commencement of SAP. The first is the financial systems reforms of 1986 to 1993 which led to deregulation of the banking industry that hitherto was dominated by indigenized banks that had over 60 per cent Federal and State governments’ stakes, in addition to credit, interest rate and foreign exchange policy reforms. The second phase began in the late 1993-1998, with the re-introduction of regulations. During this period, the banking sector suffered deep financial distress which necessitated another round of reforms, designed to manage the distress. The third phase began with the advent of civilian democracy in 1999 which saw the return to liberalization of the financial sectors, accompanied with the adoption of distress resolution programmes. This era also saw the introduction of universal banking which empowered the banks to operate in all aspect of retail banking and non-bank financial markets. The forth phase began in 2004 to date and it is informed by the Nigerian monetary authorities who asserted that the financial system was characterized by structural and operational weaknesses and that their catalytic role in promoting private sector led growth could be further enhanced through a more pragmatic reform.
Although these reforms have been acclaimed to be necessary, it is however debatable if they yielded the anticipated results. The objective of this paper therefore, is to assess the relative effectiveness of the reforms as well as gauge the likely impact of the outcomes on economic performance. Thereafter, the pitfalls which militated against the effectiveness of the reforms would be identified and future policy options recommended.
1.1 STATEMENT OF PROBLEM
