Banking sector is becoming competitive and market forces are creating an atmosphere where many banks simply cannot afford to have weak balance sheets and inadequate corporate governance. There is no doubt that the banking sector is very crucial to any nations development, and a reform in that sector plays a major role   in monetary policy formulation for effective changes to compete, attract international investment and increase capital market growth. However, Weak corporate governance evidenced by Poor risk management, frequent cases of liquidation and non compliance with regulatory requirements were some of the factors that led to the Banking reforms in Nigeria. One objective of these reforms is to create a sound and more secured banking system that depositors can trust. These banking reforms were expected to address the problem faced by the banks and other technically insolvent institutions without an initial resort to liquidation, with all its adverse consequences for deposits. However, the correlation between these sets of reforms and bank performance has not been clearly ascertained. The study examined the impact of banking reforms in bank performance in Nigeria. The study as a methodology adopted the ex-post facto statistical design. We sampled all the Seventeen commercial banks that survived the consolidation process in Nigeria using secondary sources of data. The Secondary sources of data used were retrieved from the CBN statistical bulletin and audited financial reports of the selected banks for Nine (9) years period spanning from 2000-2008. We tested our hypothesis using the Karl Pearson coefficient of correlation and the T test technique in examining the impacts and relationships amongst dependent and independent variables. Findings from the test statistics indicated that, bank reforms do not have significant impact on bank performance in Nigeria (most Sig values >0.05). There is no significant impact of interest rate on bank performance in Nigeria (R2 = 0.0366; AR2=0.275; t-value=-2.008; f-value=4.033; p=0.105; DW= 0.877). And finally, Bank recapitalization/consolidation does not significantly impact on bank performance in Nigeria (t-value = -1.621; critical t-value= -3.18; Sig-value= 0.204 >0.05). 


Cover Page i

TitlePage ii

ApprovalPage iii

Declaration iv

Dedication v

Acknowledgements vi


1.0 Introduction 1

1.1 Background to the Study 1

1.2 Statement to the Problem 2

1.3 Objectives of the Study 3

1.4 Research Questions 4

1.5 Research Hypothesis 4

1.6 Scope of the Study 4

1.7 Significance of the Study 4

1.8 Operational Definition of Terms 5

References 6


2.0 Review of Related Literature 7

2.1 Conceptual Framework 7

2.1.1 Evolution of Banking in Nigeria 7

2.1.2 Background to the Recent Reform Measures 9 2004/2005 Soludo Banking Sector Reforms in Nigeria  

(The 13 -Point Agenda).11 Sanusi Reforms (2009) 13

2.1.3 Bank Reforms and Measures of Performance 15 Liquidity 17 Capital Adequacy Ratio (CAR) 18 Asset Quality (AQ) And Non-Performing Loans(NPL) 19 Government Deposits 21 Quality Service Delivery22

2.1.4 Bank Consolidation (Merger and Acquisition) 23

2.1.5 The Vision of the Consolidation 23

2.1.6 Bank Recapitalization 27

2.1.7 The Principles of Capital Restructuring 29

2.1.8 Interest Rate Restructuring 30

2.1.9 The Reasons behind the Reforms 30

2.1.10 The Key Elements Of The Reform 32

2.1.11 The Goals and Objectives of The Reform 33

2.1.12 Macroeconomic Consideration of The Banking Reforms 34

2.1.13 The Impact Of The Banking Reforms On The Economy 35

2.1.14 The Outcome of The Banking Sector Reforms 38

2.1.15 The Benefits of The Bank Reform 39

2.1.16. The Challenges of the Bank Reform 40 

2.1.17 Regulatory Reforms and Bank Performance 42

2.2 Theoretical Framework ` 43

2.3 Empirical Framework 44

2.4 Summary of review of Related Literature 47

       References 48


3.0 Methodology51

3.1 Research Design 51

3.2 Nature and Sources of Data 51

3.3 Population and Sample Size ` 52

3.4 Technique for Analysis 52

3.5 Linear Regression Model Specification 53

References 54


4.0 Data Presentation and Analysis55

4.1 Data Presentation 55

4.2 Test of hypotheses 66



5.1 Introduction73

5.2 Summary of Findings 73

5.2 Conclusion 74

5.3 Recommendations 75

5.4 Suggestions for Further Study 75

Bibliography 76

      Appendices: 80




Reforms are predicated upon the need for reorientation and repositioning of an existing status quo in order to attain an effective and efficient state. There could be fundamental bottle-neck that may inhibit the functioning of the institutions for growth and the achievement of core objectives in the drive towards enhancing and sustaining the economic and social imperatives of human endeavor. Carried out through either government institutions or private enterprises, reform becomes inevitable in the light of the global dynamic exigencies and emerging landscape (Somoye, 2006).

In terms of policy thrust therefore the banking sector reforms are expected to build and foster a competitive and healthy financial system to support development and avoid systemic distress (Soludo, 2007). Thus Balogun (2007) averred that banking sector reforms is interpreted to mean embarking on comprehensive process aimed at

Substantially improving the financial infrastructure, strengthening the regulatory and supervisory framework to address the issue of low capitalization and a structured financing for cheap credit to the real sector and financial accommodation for small and rural credit schemes. In most cases, bank reforms are embarked upon to forestall banking crises or cushion the effects of a recent crisis. Banking sector reforms have come into play due to banks inability to meet up to required obligations or satisfy their stakeholders which overtime have led to subsequent failures and crises. A banking crisis can be triggered by weakness in banking system characterized by persistent illiquidity, insolvency, undercapitalization, high level of non-performing loans and weak corporate governance, among others. (Adegbaju and Olokoyo, 2008). 

The reforms carried out in Nigerian banking industry which started from July 6  2004 was done primarily to meet the developmental challenges of the 21st century. In his words, Professor Charles Soludo, the governor of Central Bank of Nigeria from June 2004 to June 2009 said that the reforms were to engender exchange rate and price stability, managing interest rate for stability and development of macroeconomic coordination, vigorous pursuit of the developmental roles of the CBN, improvement of the payment system, financial sector diversification and regulatory reforms and strategies for integrating the Nigeria’s financial system into the African regional and global financial system. He further emphasized his desire to concentrate on the theme of banking sector consolidation. Strengthening and consolidating the banking system was to constitute the first phase of the reforms designed to ensure a diversified, strong and reliable banking sector which will ensure the safety of the depositor’s money, play active developmental roles in the Nigerian economy and be competent and competitive players in the African regional and global financial system. The reform was to support the banks to become strong players for good health, long live and positive contributors to the economy. Depositors were expected to have sweet dreams in aftermath of this reform. With the universal Banking system which was introduced in 2000, banks became one stop shops offering a range of financial services, insurance, mortgage, stock broking, investment, banking etc. Unfortunately after the observation that the banks were putting shareholders’ funds at risk and not concentrating on their areas of core competence, the central Bank of Nigeria on 15 March 2010 announced the phasing out of universal banking within the 18 months. All these reforms had taken place but the benefits especially as it relates to bank performance is still a doubt to many people. 


Oloyode (1994) observed that the banking sector over the years has been faced with so many crises and some fraudulent practices. These crises led to the recent reforms in the banking system one of which was merger and acquisition of banks. Oke (2006) observed that the inconsistency in monetary reforms and regulatory policies as a major setback to banks stability as the surveillance and regulatory measures of the Central Bank of Nigeria (CBN) have unfortunately been unable to keep the pace with the rapidity of the changes in the financial system.

One objective of the reform is to create a sound and more secured banking system that depositors can trust. These banking reforms were expected to address the problem faced by the banks and other technically insolvent institutions without an initial resort to liquidation, with all its adverse consequences for deposits. These problems encountered by the banks before the reformation according to Lemo (2005) were as follows: 

a. Weak corporate governance, evidenced by high turnover in the board and management staff, inaccurate reports and non compliance with regulatory requirements. 

b. Late or non publication of annual accounts that obviates the impact of market discipline in ensuring banking soundness. 

c. Poor risk management practice. 

d. Operation at level lower than that which could deliver competitive return on equity. 

e. Poor asset quality. 

f. Poor quality services and diversified delivery channels. 

g. Thin spread of qualified and experienced man power. 

h. Heavy reliance by banks on government patronage. 

i. Gross insider abuses, resulting in huge non performing insider related credits.

j. Weak capital base, the minimum capital base before the reforms was N2 billion which is approximately $15 million. But after the reform the minimum capital requirement stood at N25 billion, approximately $250 million. 

According to Soludo (2007), the Nigerian banking system has undergone remarkable changes over the years. Regimes in Central Bank of Nigeria have always geared up towards the avoidance of banking distresses and its attendant consequences as witnessed in Nigeria in the past. These changes have been influenced largely by challenges posed by the reforms in an attempt to consolidate and strengthen the banking system and solve the problem of illiquidity and distress, and to restore public confidence in the sector. However, the correlation between these sets of reforms and banks performance has not been clearly ascertained.


The main objective of the study is to ascertain the impact of banking reforms on Bank performance in Nigeria. The specific objectives are: 

1.   To determine the effect (s) of banking reforms on bank performance in Nigeria.

2 To assess the impact of interest rate restructuring on bank’s performance in Nigeria. 

3 To determine the impact of Bank Recapitalization /consolidation on bank’s performance in Nigeria. 


The research questions were formulated to address the research problem and the research objectives as discussed above. Three principal research questions were answered in this study. They are:

1. Do bank reforms have any effect on bank’s performance in Nigeria?

2. How does interest Rate restructuring impact on bank’s performance in Nigeria?

3. Has bank recapitalization /consolidation had any impact on bank’s performance Nigeria? 


Based on the research questions above the following hypotheses were designed to guide the course of study 

1. Bank reforms do not have any effect on bank’s performance in Nigeria. 

2. There is no significant impact on bank’s performance by interest Rate in Nigeria.

3. Bank Recapitalization/consolidation does not significantly impact on bank’s performance in Nigeria.


The research covers all the reforms that have taken place in the Nigerian Banking system within the period 2000 – 2008.


One of the major significance of the work includes the evaluation of the banking reforms in terms of its impact on efficiency in the Nigerian banking sector. At the en of this study, the following shall benefit.

⦁ Government of Nigeria at respective levels: Federal, State and Local Government in seeing the way to propound laws to care for the problems of the monetary policies of the bank.

⦁ The bankers in seeing how to execute their works in order to bring about a fair and sound financial system.

⦁ General public in understanding how the reforms have helped the banking sector. 


Consolidation: This occurs when two companies combines into one for either a 

business or other purposes. 

Mergers: A merger occurs when two or more companies transfer their businesses and asset to a new company and in consideration; their members receive shares in the transferee company 

Acquisition: An acquisition occurs when one company acquires sufficient shares in another company so as to control that other company. This may be inform of take over bids or by purchasing shares in the market 


Adegbaju, A.A. and F. O. Olokoyo (2008). Recapitalization and Bank’s Performance; A case study of Nigerian Banks.  African Economic and Business Review,6(1): pp 1-4.

Ajayi, M. (2005) Banking Sector Reforms and Banks Consolidation in Nigeria C.B.N Bullion, Vol. 29 No. 3 April /June. 

Balogun, E. D. (2007). A review of Soludo’s perspective of Banking Sector Reforms in Nigeria. Munich Personal RePEc Archive.MPRAPaper No. 3803 http// Accessed 7th Nov. 2014 

Central Bank of Nigeria (2004): “A Reform Agenda” and “guideline and incentives on consolidation in the Nigerian Banking Industry”. This newspaper day Lagos. 

Central Bank of Nigeria (2006) press release, January Abuja 

Oke, O. A. (2006). Banking Consolidation In Nigeria and the Strategies For Generating Better Returns. wwwsearchwarpcom. Accessed, June 28, 2014.

Oloyede, A. (1994). Banking Regulation in Nigeria: An Analytical Perspective. Central Bank of Nigeria Economic and Financial Review, 32 (3): 279-291.

Soludo, C. (2004) Consolidating the Nigerian Banking Industry to meet the development challenges on the 21st century” the Bankers, committee, held on July 6 at the CBN headquarters, Abuja.

Soludo, C. (2007). Macroeconomic, monetary and financial Sector developments in Nigeria. CBN website: wwwcenbankorg. 

Soludo, C. C. (2007). Macroeconomic, Monetary and Finance Sector Development in Nigeria. wwwcenbankorg. Accessed 28/06/2014.

Somoye, R.O.C.(2006). Bank Consolidation in Nigeria: The Macroeconomic Expecttation. Babcock Journal of Management and Social Sciences,5(1): pp 1597-3948.

Udoma U. U. (2004). Banking: Post Consolidation Challenges. Being a paper presented at the 4th Annual monetary policy conference of the Central Bank of Nigeria 19th November Abuja. 



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