Financial Development and Economic Growth Nexus in Nigeriaiosrjce
The study assessed the impact of financial development on economic growth in Nigeria using time
series data from 1970 to 2012. The Autoregressive Distributed Lag bounds testing approach to cointegration
was utilized for this study. The result from the ARDL model indicate that the variables for this study are
cointegrated while the error correction term appeared significant and confirms that short-run disequilibria are
corrected up to about 50 percent annually. The empirical results reveals that financial development exerts
positive and significant impact on economic growth in the long-run while trade liberalization variables exert
negative impact on economic growth in the long-run indicating non-competitive nature of non-oil domestic
products in the international market. In the short-run, domestic credit is insignificant which indicates a dearth
of investible funds in the economy. There is evidence that financial development policies influence economic
growth in the long-run and not in the short-run. This study among others recommends the urgent need to
implement policies that will strengthen the deposit mobilization and intermediation efforts in the banking system
in other to deepen the financial system. Nigerian trade performance should be improved through economic
diversification and further availability of funds to private sector at competitive interest rate in order to produce
internationally competitive products.
The presentation describes the relation between Financial development and growth in Emerging Market Economies. It is primarily based on abstract. However, one can contact me for further details.
Financial Development and Economic Growth Nexus in Nigeriaiosrjce
The study assessed the impact of financial development on economic growth in Nigeria using time
series data from 1970 to 2012. The Autoregressive Distributed Lag bounds testing approach to cointegration
was utilized for this study. The result from the ARDL model indicate that the variables for this study are
cointegrated while the error correction term appeared significant and confirms that short-run disequilibria are
corrected up to about 50 percent annually. The empirical results reveals that financial development exerts
positive and significant impact on economic growth in the long-run while trade liberalization variables exert
negative impact on economic growth in the long-run indicating non-competitive nature of non-oil domestic
products in the international market. In the short-run, domestic credit is insignificant which indicates a dearth
of investible funds in the economy. There is evidence that financial development policies influence economic
growth in the long-run and not in the short-run. This study among others recommends the urgent need to
implement policies that will strengthen the deposit mobilization and intermediation efforts in the banking system
in other to deepen the financial system. Nigerian trade performance should be improved through economic
diversification and further availability of funds to private sector at competitive interest rate in order to produce
internationally competitive products.
The presentation describes the relation between Financial development and growth in Emerging Market Economies. It is primarily based on abstract. However, one can contact me for further details.
Equity financing is one of the sources of funding available to non-bank financial institutions which is quite prevalent in developed financial markets for small or start-up firms. This study empirically determined the effect of the Equity Financing Scheme on a sustainable increase in productivity of agro-allied small businesses in Nigeria. Data for this study were elicited through the use of a questionnaire structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that the equity financing scheme had a positive and significant effect on the sustainable productivity of agro-allied small businesses in South-South Nigeria. The study recommended that efforts should be made to educate the small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This study examined the impact of financial innovation on money demand in Nigeria, using quarterly time series for the period 2009-2019. The dependent variable was money demand, represented by broad money, while the independent variable was financial innovation represented by modern payment channels such as volume of Automated Teller Machines (ATMs) transactions, volume of Point of Sales (POS) transactions, volume of Internet banking transactions, and volume of Mobile banking transactions. The study employed the ordinary least squares (OLS) regression technique as the estimation method within the cointegration, granger causality, and error correction modeling. The result obtained showed that financial innovation has mixed impact on money demand in Nigeria during the period of analysis. For instance, financial innovation has positive impact on money demand through volume of ATM transactions in the current period, two periods lagged of volume of mobile banking transactions, current period and one period lagged of volume of internet banking transactions, and current period’s volume of Point of Sales (POS) transactions in Nigeria. On the other hand, financial innovation has negative impact on money demand through one period lagged of volume of point of sales in Nigeria. On the stability of the demand for money function, the result of the stability tests based on the CUSUM test and CUSUM of squares test showed that the demand for money function was stable during the evaluation period. The study recommended that monetary policy strategy of the central bank of Nigeria (CBN) should be fine-tuned to ensure it is well suited to deal with the challenges posed by financial innovation by way of proliferation of sophisticated payment channels.
In this paper we try to estimate effects of financial deepness and capital account liberalization on economic growth, investment and the total factor productivity (TFP) in Slovenia from 1993 to the second quarter of 2001. We find out that the only positive effect of capital account liberalization was increased credits to private sector. On the other hand, financial depth has a positive and significant effect on economic growth and investment, but not on the TFP growth. Moreover, it is not likely that also capital account liberalization positively affects above specified choice variables. Namely, financial deepening is achieved through development of adequate institutions and sustainable macroeconomic policies. Once financial system is set in the country, capital account liberalization takes place.
In India, commercial banks are the oldest, largest and fastest growing financial intermediaries. They have been playing a very important role in the process of development. In 1949 RBI was nationalized followed by nationalization of Impearl Bank of India (New State Bank Of India) in 1995.
Financial sector is treated as to be the back bone of the economy. The quality in the working of financial sector truly impacts the profitability of the banks which as a whole impacts the economy and GDP of a country. Thus, it is important to explore the impact of reforms on the profitability of Indian banks. The paper focuses on the impact of reforms on profitability of Indian banks. This research will evolve the performance of financial institutions only after 1998 and in the wake of Narsimham Committee II.
The study is micro economic in nature and seeks to analyze the productivity of banking systems. Here an attempt has been made to examine the impact of reforms. The impact of reforms on the profitability of Indian banks has been examined on the basis of following parameters: Interest income to total assets, Operating Profit to Total Asset, Return on Asset and Return on Advances. More importantly such analysis is useful in enabling policymaker to identify the success or failure of policy initiative or alternatively highlight different strategies undertaken by banking firms which contribute to their success. Here an attempt has been made to examine the impact of banking reforms on profitability of Indian banking industry.
GROWTH PHASE IN INDIAN BANKING SECTOR
In over five decades since dependence, banking system in India has passed through five distinct phase, viz.
(1) Evolutionary Phase (prior to 1950)
(2) Foundation phase (1950-1968)
(3) Expansion phase (1968-1984)
(4) Consolidation phase (1984-1990)
(5) Reformatory phase (since 1990)
With banks being the major avenue that the CBK relies on to execute monetary policy, the paper
sought to investigate whether commercial banks are actually responsive to monetary policy.
The study used an Error Correctional Model to estimate a relationship where lending rates were
treated as the dependent variable while the independent variables were monetary policy,
specifically CBR. The model was also expanded to include additional independent variables
specifically monetary policy transmission channels. These include the credit channel which is
represented by credit to the private sector, exchange rate channel represented as nominal
exchange rate and asset price channel. For consistency, inflation and economic growth were
included in the model because these are the targets of monetary policy.The study findings
showed that there was a long run relationship between lending rates and Central Bank Rate,
Exchange Rates, Asset Price, Credit to the Private Sector, Economic growth and Inflation Rates.
The results also indicated that CBRand Inflation cause lending rates to increase in the short run
while credit to the private sector causes lending rates to decrease in the short run. A statistically
significant relationship was also established between lending rates and CBR, credit to the
private sector. The study concludes that commercial banks’ lending rates are indeed positively
responsive to CBR and that in order to spur economic growth; commercial banks’ lending rates
should be stabilized by streamlining the economic environment in which commercial banks
operate, therefore ensuring stable rates of borrowing.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
Role of Central Banks Notes - A-Level & IB EconomicsQurious Education
Download these notes and other resources at https://WeAreQurious.com/Economics
Teaching, learning and revision notes for Central Banks in A-Level Economics and IB Economics for all exam boards (Edexcel, AQA, OCR, Eduqas).
Equity financing is one of the sources of funding available to non-bank financial institutions which is quite prevalent in developed financial markets for small or start-up firms. This study empirically determined the effect of the Equity Financing Scheme on a sustainable increase in productivity of agro-allied small businesses in Nigeria. Data for this study were elicited through the use of a questionnaire structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that the equity financing scheme had a positive and significant effect on the sustainable productivity of agro-allied small businesses in South-South Nigeria. The study recommended that efforts should be made to educate the small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This study examined the impact of financial innovation on money demand in Nigeria, using quarterly time series for the period 2009-2019. The dependent variable was money demand, represented by broad money, while the independent variable was financial innovation represented by modern payment channels such as volume of Automated Teller Machines (ATMs) transactions, volume of Point of Sales (POS) transactions, volume of Internet banking transactions, and volume of Mobile banking transactions. The study employed the ordinary least squares (OLS) regression technique as the estimation method within the cointegration, granger causality, and error correction modeling. The result obtained showed that financial innovation has mixed impact on money demand in Nigeria during the period of analysis. For instance, financial innovation has positive impact on money demand through volume of ATM transactions in the current period, two periods lagged of volume of mobile banking transactions, current period and one period lagged of volume of internet banking transactions, and current period’s volume of Point of Sales (POS) transactions in Nigeria. On the other hand, financial innovation has negative impact on money demand through one period lagged of volume of point of sales in Nigeria. On the stability of the demand for money function, the result of the stability tests based on the CUSUM test and CUSUM of squares test showed that the demand for money function was stable during the evaluation period. The study recommended that monetary policy strategy of the central bank of Nigeria (CBN) should be fine-tuned to ensure it is well suited to deal with the challenges posed by financial innovation by way of proliferation of sophisticated payment channels.
In this paper we try to estimate effects of financial deepness and capital account liberalization on economic growth, investment and the total factor productivity (TFP) in Slovenia from 1993 to the second quarter of 2001. We find out that the only positive effect of capital account liberalization was increased credits to private sector. On the other hand, financial depth has a positive and significant effect on economic growth and investment, but not on the TFP growth. Moreover, it is not likely that also capital account liberalization positively affects above specified choice variables. Namely, financial deepening is achieved through development of adequate institutions and sustainable macroeconomic policies. Once financial system is set in the country, capital account liberalization takes place.
In India, commercial banks are the oldest, largest and fastest growing financial intermediaries. They have been playing a very important role in the process of development. In 1949 RBI was nationalized followed by nationalization of Impearl Bank of India (New State Bank Of India) in 1995.
Financial sector is treated as to be the back bone of the economy. The quality in the working of financial sector truly impacts the profitability of the banks which as a whole impacts the economy and GDP of a country. Thus, it is important to explore the impact of reforms on the profitability of Indian banks. The paper focuses on the impact of reforms on profitability of Indian banks. This research will evolve the performance of financial institutions only after 1998 and in the wake of Narsimham Committee II.
The study is micro economic in nature and seeks to analyze the productivity of banking systems. Here an attempt has been made to examine the impact of reforms. The impact of reforms on the profitability of Indian banks has been examined on the basis of following parameters: Interest income to total assets, Operating Profit to Total Asset, Return on Asset and Return on Advances. More importantly such analysis is useful in enabling policymaker to identify the success or failure of policy initiative or alternatively highlight different strategies undertaken by banking firms which contribute to their success. Here an attempt has been made to examine the impact of banking reforms on profitability of Indian banking industry.
GROWTH PHASE IN INDIAN BANKING SECTOR
In over five decades since dependence, banking system in India has passed through five distinct phase, viz.
(1) Evolutionary Phase (prior to 1950)
(2) Foundation phase (1950-1968)
(3) Expansion phase (1968-1984)
(4) Consolidation phase (1984-1990)
(5) Reformatory phase (since 1990)
With banks being the major avenue that the CBK relies on to execute monetary policy, the paper
sought to investigate whether commercial banks are actually responsive to monetary policy.
The study used an Error Correctional Model to estimate a relationship where lending rates were
treated as the dependent variable while the independent variables were monetary policy,
specifically CBR. The model was also expanded to include additional independent variables
specifically monetary policy transmission channels. These include the credit channel which is
represented by credit to the private sector, exchange rate channel represented as nominal
exchange rate and asset price channel. For consistency, inflation and economic growth were
included in the model because these are the targets of monetary policy.The study findings
showed that there was a long run relationship between lending rates and Central Bank Rate,
Exchange Rates, Asset Price, Credit to the Private Sector, Economic growth and Inflation Rates.
The results also indicated that CBRand Inflation cause lending rates to increase in the short run
while credit to the private sector causes lending rates to decrease in the short run. A statistically
significant relationship was also established between lending rates and CBR, credit to the
private sector. The study concludes that commercial banks’ lending rates are indeed positively
responsive to CBR and that in order to spur economic growth; commercial banks’ lending rates
should be stabilized by streamlining the economic environment in which commercial banks
operate, therefore ensuring stable rates of borrowing.
American Research Journal of Humanities & Social Science (ARJHSS) is a double blind peer reviewed, open access journal published by (ARJHSS).
The main objective of ARJHSS is to provide an intellectual platform for the international scholars. ARJHSS aims to promote interdisciplinary studies in Humanities & Social Science and become the leading journal in Humanities & Social Science in the world.
Role of Central Banks Notes - A-Level & IB EconomicsQurious Education
Download these notes and other resources at https://WeAreQurious.com/Economics
Teaching, learning and revision notes for Central Banks in A-Level Economics and IB Economics for all exam boards (Edexcel, AQA, OCR, Eduqas).
Smooth functioning a bank depends on the stability of stream of returns that it gets from its financing decision. This study is an attempt to showcase the reason for idling or shortage of funds and the factors for the case of Islamic banking. This effort will determine the strategy which can boost the financing in the economy, for this, this study has used the panel data of full-fledged Islamic banks from countries Pakistan and Malaysia, spanning to several years and based on several banks. Based on the analysis of internal and external factors of Islamic banks, it can be seen that increase in the market rate leads to decrease in demand of financing while the increase in deposits and equity do not show a proportional increase in financing which hints that there is excess liquidity available in the Islamic banks. On the positive side, it is evident that increase in the economic activity boosts the demand for Islamic financing.
The study is based on why bank fail in Nigeria. The study found out that banks fails because low level of customer patronage; high expenditure and government policy
The Impact of Monetary Policy on Financial Performance: Evidence from Banking...Muhammad Arslan
Interest rate an important indicator of monetary policy always has major impact on financial sector performance.
The purpose of this paper is to enlightened the monetary policy effect on banking sector stability and performance
by investigating the casual relationship between interest rate imposed by state bank of Pakistan and bank financial
performance taken as ROA and ROE. Highlighting the importance of monetary policy in banking sector, this study
shall focus in depth over its impact on performance of banking industry of Pakistan by studying monetary
transmission over the past five year (2007-2011), using interest rate as its measure. Using correlation analysis
followed by ordinary Least Square regression carries the empirical analysis of the study. Firm size is taken as
control variables for the study as firm size have significant impact on financial performance of banks. The finding of
study reveal that interest rate taken as measure for monetary policy has significant inverse relationship on firm
financial performance measured, which is measured by ROA and ROE.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
The main purpose of this research is to study and highlight that central bank of Jordan (CBJ) plays an important role in economic development. The objective of the financial organization shall be to keep up financial and money stability, to confirm the interchangeability of the Dinar, and to contribute in achieving the banking and money stability within the Kingdom likewise as promoting sustained economic process in accordance with the overall economic policies of the government. To achieve the above- mentioned objectives, CBJ assumes many tasks portrayed in drawing and implementing the financial policy within the Kingdom through an integrated system of monetary policy instruments, setting a evaluation policy of the Dinar compatible with the Jordanian economy, maintaining and managing the Kingdom’s reserves of gold and foreign currencies, regulation credit within the Jordanian economy so as to realize financial and money stability likewise as comprehensive economic process, and issue and regulation bank notes and coins. Subsequently, the central bank plays necessary role within the economic resource allocation of the country. The banking industry may be a major issue that affects the organization of social and economic life cycle within the economies of the planet. it is thought about as associate degree indicator of economic and social growing.. Also, developed financial set up ought to be characterized by the existence of a contemporary and complicated banking industry that contributes to achieving economic balance. It conjointly encourages domestic and foreign investment through the banking system’s ability to states. The aim of the banking industry is to draw in savings domestically and abroad, and direct those savings into productive investment. As a result, this contributes to the accomplishment of economic and social development method, and conjointly facilitates investment activity.
The impact of banking consolidation on the economic development of nigeria
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.16, 2014
The Impact of Banking Consolidation on the Economic
Development of Nigeria
Enya Emori1 Stephen Nkamare2 Ikenna Nneji3*
1.Lecturer, Department of Banking and Finance, University of Calabar, Cross River, Nigeria
2.MSc Scholar, Department of Banking and Finance, University of Calabar, Cross River, Nigeria
3.PhD Scholar, Department of Banking and Finance, University of Calabar, Cross River, Nigeria
*dikenna@yahoo.com
Abstract
Consolidation was used as a key strategy by a number of banks to meet the capitalization requirements issued by
the Central Bank of Nigeria (CBN) in 2005. In view of the need to understand the effect of this strategy as used
by the banks, this study sought to establish the impact of bank capital, aggregate investment, loans and advances,
bank profitability on the performance of the Nigerian economy. Time series was used from 1986-2011 and
multiple regression was used to analyze data. It was found that bank capital was a determinant of banks
performance and banks’ investment had a positive impact on the economy. The study also showed that loans
and advances were a determinant of banks profitability. Accordingly, it was recommended that the Central Bank
of Nigeria should constantly monitor the activities and the performance of the emerging mega- banks in order to
prevent bank distress and failure .It was also recommended that adequate capital should be provided to make
Banks more liquid.
Keywords: Consolidation, economic development
1. Introduction
The banking industry is the most vibrant sector in the Nigeria economy. It serves as catalyst for growth and
development. It is the pivot upon which a nation’s economy rotates. Commercial banks are unique among
financial institution. Commercial banks have the extra capacity to create new credit money (Nzotta, 2004). The
money is invested in low and high risk assets to ensure that depositors funds are not impaired by cumulative
losses and banks are by law and regulation expected to hold adequate capital cover to cushion out any loss, so
that depositors funds may continue to be intact (Onoh, 2002).
The strength of a bank depends on the capital funds available to the bank. According Soludo (2004),
banks have not played their expected role in the development of the economy because of their weak capital base
and as such, the decision to raise capital base of banks was with the aim of strengthening and consolidating
banking system. The strengthening and consolidation of the banking system was the first phase of reforms
designed to ensure a diversified, strong and reliable banking sector which will ensure the safety of depositors’
money, play active development roles in the Nigeria economy and also become competent and competitive in the
financial system.
Consolidation of banking firms involves either a combination of existing bank growth among the
leading banks. The capital of bank is to serve as a symbol of confidence in banking institutions. Therefore, the
strong capital base prescribed under the recapitalization programme is consistent with corporate mandate of
promoting public confidence in the banking system. The increase in the minimum capitalization requirement for
banks will, to a large extent, engender public confidence in the banking system as it will enhance banks
capacities to absorb operating losses and minimize recourse to depositors’ funds protection agency.
1.1 Statement of the problem
Capital is required to support business but the importance of adequate capital in banking cannot be over-emphasized.
It is an essential element which enhances confidence and permits a bank to engage in banking. A
very important function of capital in a bank is to serve as a means of absorbing losses. It serves as a buffer
between operating losses and insolvency.
Bank capital does not only serve as a cushion against deposition run-off, but forms the basis for future
asset growth. The rate at which retained earnings grow is determined to a large extent by the growth of bank
capital and invariably the growth of bank asset. If the rate of growth of retained earnings is low, it could be an
indication of poor profitability which may affect the performance Nigeria economy.
Bank consolidation stems from the need to resolve problem of financial distress in order to avoid
systematic crises as well as to restrict inefficient banks because of inadequate capital cover to wipe out or at least
reduce losses sustained from failed investments. The presence of weak, unhealthy and undercapitalized banks
increased the need for a high level of consolidated banks through mergers and acquisitions. This has
necessitated the work to see how bank consolidated in Nigeria in the past years have led to economic
development
113
2. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.16, 2014
114
1.2 Objective of the study
The general objective of the study is to make a critical look at the impact of banking consolidation on
the economic development of Nigeria.
The specific objectives underlying this research are;
• To examine the impact of bank capital on the banks performance
• To ascertain the effectiveness of bank investment on the performance of banks in Nigeria.
• To determine the role of investment and its contribution to the performance of banks in Nigeria
• To investigate the impact of consolidated banks on the performance of Nigeria economy
1.3 Research hypotheses
From the above research objectives, the formulated research hypotheses are stated in null form.
Ho1: There is no significant relationship between bank capital and the performance of banks in Nigeria.
Ho2: There is no significant relationship between bank investment and the bank performance in Nigeria.
Ho3: There is no significant relationship between total investment and the performance of banks in Nigeria
HO4: There is no significant relationship between consolidated banks and the performance of Nigeria banks
2.0 Theoretical framework
Banking consolidation theories on the economic development of Nigeria are:
2.1 Pro concentration theories
Proponents of banking sector concentration argue that economies of scale drive bank mergers and
acquisition (increasing concentration) so that increased concentration goes hand-in-hand with efficiency
improvements. (Demirgue-kunt and Levine, 2000). This is partly because reduced concentration in a banking
market results in increased competition among banks. Proponents of this “concentration-stability” view argue
that larger banks can diversify better so that banking systems characterized by a few large banks will be tend to
be less fragile than banking system with many small banks. Concentrated banking system may also enhance
profits and therefore lower bank fragility. High profits provide a buffer against adverse shocks and increase the
franchise value of the bank, reducing incentives for bankers to take excessive risk. Furthermore, a few large
banks are easier to monitor than many small banks, so that corporate control of banks will be more effective in a
concentrated banking system.
2.2 Pro de-concentration theories
This theory indicates that bank consolidation tends to increase the risk of bank portfolios. proponent of
banking sector de-concentration also argue that concentration will intensify market power and political influence
of financial conglomerates, reduce efficiency and destabilize financial systems as banks become too big to
discipline and use their influence to shape banking regulation and policies. While excessive competition may
create an unstable banking environment, insufficient competition and contestability in the banking sector may
breed inefficiencies.
In concentrated banking systems, bigger, politically connected banks may become more leveraged and
take on greater risk since they can rely on policy makers to help when adverse shocks hurt their solvency or
profitability similarly, large, politically influential banks may help shape the policies and regulations influencing
banks’ activities in ways that help banks, but not necessarily in ways that help the overall economy.
2.3 Supply-leading theories
In this theory, the premise underlying the proposition that financial liberalization (a major component of
financial development) promotes growth is fairly straight forward. Given that investment is a primary
determinant (factor) of growth, for investment to take place, firms (investors) and savers must be given
incentives. Moreover, savings have to be channel to investors. Financial liberalized, (financial development)
ensures that this takes place efficiently (efficient financial intermediation). As interest rates rise, the quality of
investments is enhanced, since financial repression is often associated with mediocre quality investments. In
addition, investment (quantity) rises, since higher deposit rates increase the supply of finds.
In this supply-led theory, finance was considered a means to induce innovation, as a form of input. For
example, conveyed the idea that economic growth and development could be encouraged through interventions
in the financial system by supplying finance in advance of demand. These supply-leading financial theories came
to dominate rural finance for several decades.
3. Research methodology
3.1 Research design
Research design is the approach or scheme which defines the tools and strategies of the research. In
3. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.16, 2014
this study, the exploratory design is employed to identify the factors that contribute to bank consolidation on the
economic development of Nigeria.
115
3.2 Sources of data
Two major sources of data exist; these are the primary sources and the secondary sources. Primary
sources are generated by the research and secondary source consists of already existing data used for some other
work but were found to be useful in this study. Based on the objectives of the study, the secondary sources are
employed in this research.
3.3 Techniques of data analysis
In analyzing the data gathered for this work, multiple regression models were employed to establish the
relationship between dependent variable and independent variables.
3.4 Model specification
The objective of the study is to establish the relationship existing between the banking consolidation
and economic development. Based on this, the model below has been developed for the study.
GFCF = F (BC)
Where;
GFCF = Gross Fixed Capital Formation
The functional relationship is turned into ordinary least square (OLS) model.
GFCF = ao +a1BC+e
Where ;
Dependent variable = GFCF
Independent variable = BC
Regression constant = ao
Regression coefficient = a1
Stochastic error term = e
Model two:
GDP = ao +a1ABINC+a2AGINV+e
Where;
Dependent variable = GDP
Independent variables = ABINV, AGINV
Regression constant = ao
Regression coefficient = a1-a2
Stochastic error term = e
Model three:
Bprof = ao +a1BINv+e
Where;
Dependent variable = BPROF
Independent variables = BINV
Regression constant = ao
Regression coefficient = a1
Stochastic error term = e
4. Data analysis and discussion of findings
4.1 Data analysis
The estimation technique used was the ordinary least square (OLS) method. The first step involved in
the estimation of linear relationship is the comprehensive pre-testing procedure to investigate the variables.
The bank capital variable had a positive sign, as seen in table 1. Thus, a one percent increase in bank
capital will lead to 0.972772 percent increase in GFCF, ceteris paribus. The variable of Bank capital is
statistically significant at 1% per cent level. Thus, it is a reliable variable that influences GFCF.
On the other hand 0.973 had a positive impact on gross fixed formation. The coefficient of
determination, the adjusted R2 with 0.800467 using error correction modeling shows that about 80 per cent
variation in GFCFC is determined by changes in the explanatory variables specified in the model. Thus, it is a
good fit. The f-statistics as shown in the Table 4.2.1 showed that the whole model is jointly significant at 5 per
cent level. The Durbin-Watson (DW) statistics of 96.28090 reveals that it is difficult to establish whether there
is autocorrelation or not as the value lies between 4-du and 4-dl. Thus, it is in the inconclusive region and within
4. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.16, 2014
the acceptable bounds. Hence, it is good for policy analysis.
There is no multicolinearity in the model because the adjusted R2 is relatively high as most of the
coefficients of the variables are significant at five percent level. More so, the standard error is as shown in the
table.
The coefficient of the error correction term carries the correct sign and it is statistically significant at
five percent level with the speed of convergences to equilibrium.
The presentation of result from table 2 is given below;
116
LGDP = -3.75+10.00LABINV-0.4200LAGINV
t-stat. = (2.26) (8.071) (-2981)
The coefficient of determination (R2) is 0.919 and an adjusted R2 of 0.912. The later indicates that 91%
of variations in the observed behavior of GDP is jointly explained by the independent variables namely;
LABINV, LAGINV. This shows that the model fits the data well and has a tight fit. Also, the f-statistic is used
to test for the significance of such good or tight fit. The model reports on effectively high f-statistic value of
130.2025 which when compared with the table value. This indicates that the high-adjusted R2 value is better
than would have occurred by chance; therefore, the model is statistically robust.
Using this criterion, therefore, LABINV is significant at 1% level. Specifically, a 1% increase in
LABINV (10.0%), and LAGINV (-0.42%) will prop up the economy more than proportionate percentage point.
The constant term indicates that if all variables held constant, the economy will be depressed by -3.74. The DW
statistic (1.272) is used to test for the serial correlation in the residuals of the model. The calculated DW is 1.27.
The du = 1.66, 4-du = 2.34, dl = 1.12, 4-dl = 2.88 at 5% level. The decision rule is that if the calculated DW
falls outside du and 4-du (1.66 and 2.34) then there is a serial correlation in the residuals. This shows that our
calculated DW = 1.272 falls and this indicates that the estimates should be taken with caution.
The presentation of result from table 3 is thus;
BPROF = 3767081 + 1.999579
BPROF = 3767081 + 1.999579BINV
t-stat. = (5.095246) (1.890149)
This shows that the model fits data well and has a tight fit.
Using this criterion, therefore BINV is insignificant. Specifically, a 1% increase in BINV (1.99%) will
prop the performance of banks.
4.2 Test of hypotheses
In order to test the already stated hypotheses in chapter one, the following decision rule is stated:
Decision rule
The decision rule is to reject the null hypothesis if the t-calculated is > t-table. And accept the null
hypothesis if the t-calculated < t-table.
Hypothesis 1
Results
t-calculated for LBC = 9.812283
t-critical at 23 df 0.05 = 2.01
Based on these results and our decision rule the null hypothesis is rejected and alternate hypothesis is
upheld and concluded that there is a significant relationship between bank capital asset and performance of
banks.
Hypothesis 2
Results
t-calculated for LABINV = 8.071236
t-critical at 23 df 0.05 = 2.01
Based on these results and our decision rule the null hypothesis is rejected and alternate hypothesis is
upheld and concluded that there is a significant relationship between total investment and the performance of
banks
Hypothesis 3
Results
t-calculated for BINV = 1.999579
t-critical at 23 df 0.05 = 2.01
Based on these results and our decision rule the null hypothesis is rejected and alternate hypothesis is
upheld and concluded that there is no significant relationship between investment and the performance of bank
capital.
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4.3 Discussion of findings
From the results of our hypotheses as stated above, bank total asset had a significant impact on the
growth and development of banks through investment This means that the effectiveness of recapitalization is
dependent on the ability of the Central bank to use this as a strategy to fine tune the performance of banks in
Nigeria. Bank total capital had a positive impact in the performance of banks and it contributed positively to the
growth and development of banks.
The result shows that bank investment (BINV) had a positive impact and it was statistically significant.
Also, aggregate investment had a negative impact on the performance of banks and it was statistically
insignificant to the growth and development of Nigeria banks.
On the other hand, bank investment had a bank positive impact on banks profitability and it was a
policy variable that affected the growth and development of banks and was found statistically significant, this
means that bank total investment was relevant during the period of study. All the incorporated variables were
determinants of bank recapitalization with a positive performance. 1% increase on each variable contributed
positively to the growth of banks.
Given the empirical results of the model, the study revealed that bank capital, bank investment and
aggregated investment contributed positively to the growth of Nigerian economy. More so, these results are in
conformity with economic theory that states that a rise in independent variables led to a rise in the dependent
variable.
As an addendum, this study is in conformity with the pro-concentration theories which states that
concentrated banking system may also enhance profits. Also high profits provide a buffer against adverse shocks
and increase the value of the bank.
5 Conclusions and Recommendations
5.1 Conclusions
The study has established that bank consolidation in the Nigerian financial system secured through
mergers and acquisition by increasing shareholders fund for investors confidence as well as financial stability
and operational efficiency of the consolidated banks. The research study has established that bank consolidation
helps in storing up investment capital, enhances shareholders value, protects both creditors and depositors as
well as lower costs and enhancing their liquidity positions. Also, adequate capital brings financial stability,
growth and profitability.
As an addendum, the increased capital base of commercial banks will curb the incidence of distressed
and technically insolvent banks which has been a plight to the banking institutions in the past and as a result of
low capital base of banks.
5.2 Recommendations
The following recommendations are proffered based on the findings of the study:
1. The CBN must remain resolve and focused on the implementation of its statutory requirements even in
post-consolidation so as to guide against distress in the banking sector
2. The CBN must also ensure that quality services are rendered to investors by the consolidated banks
3. The lending and interest rates of banks should be fairly uniform so as to restore investors confidence in
the banks.
4. The CBN needs to constantly monitor the activities and the performance of the emerging mega banks to
prevent bank distress and failure
5. Commercial banks should have enough capital to provide a cushion for absorbing loan losses or other
problems ,funds for internal needs and for expansion and added security for depositors and deposit insurance
system
6. Adequate capital should be provided to make banks liquid
References
Ajayi, M. (2005). Banking sector reforms and bank consolidation: Conceptual framework. In bullion a Journal
of Central Bank of Nigeria. Lagos: Central Bank of Nigeria Press.
Baridem, D. M. (2001). Research methods in administrative sciences. Port Harcourt: Belt Publishers Ltd.
Bello, Y. A. (2005). Banking system consolidation in Nigeria and some regional experience challenges and
prospects. The Bulion 29(2), 47-54,
Berger, A. N. Demesetz, R. S. (2008). The consolidation financial services industry causes, consequences and
implications for the future , Journal of Banking and Finance 231: 135-199.
Beverly, H. and Melti, C. (2008). “Growth, consolidation and strategy” in Federal Reserve Bank of New York,
10(8), 20-27.
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Bis, (2001). Risk management principles for electronic banking” In Bullion, 29(2; April/June,), 55-57.
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TABLE 1
Regression results (The relationship between BC)
Dependent variable: LGFCF
Variables Coefficient Std. error t-stat Sig.
C 3.481684 0.932634 3.7332 0.0010
LBC 0.9728 0.09914 9.8122 0.0000
SOURCE: Statistical software application
R2 = 0.800467
R2(adj) = 0.792153
SER = 0.957217
f-stat = 96.28090
DW = 0.742222
TABLE 2
Regression results (Relationship between LABINV, LAGINV)
Dependent variable: LGDP
Variable Coefficient Std. error t-stat Sig.
C -3.746 1.657169 -2.260667** 0.0336
LABINV 10.00510 1.23959 8.071236* 0.0000
LAGINV -0.4200 0.14090 -2.981051* 0.0067
SOURCE: Statistical software application.
R2 = 0.918844
R2(adj) = 0.911787
SER = 0.574625
F-stat = 130.2025
DW = 1.272411
7. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.5, No.16, 2014
TABLE 3
Regression results (Relationship between BINV and BPROF)
Dependent variable: BPROF
Variable Coefficient Std. error t-stat Sig.
C 3767081 7393324 5.095246* 0.0000
BINV 1.999579 1.122935 1.890149 0.3822
SOURCE: Statistical software application.
R2 = 0.831960
R2(adj) = 0.808375
SER = 3482141
F-stat = 84.92364
DW = 1.388090
119
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