The study examines the effects of Banking Sector Reforms on Nigerian economic growth and development. Data used for the study were collected from the statistical bulletin of the Central Bank of Nigeria and National Bureau of Statistics for various years covering the period from 2000- 2011 . Data collected were analyzed using ordinary least square statistical techniques. Specific findings from the study indicate that there is a significant relationship between banking sector reform and the performance of the banking industry. Moreover, that banking sector reform contribute to credit to the private sector, loan to deposit ratio and significantly total asset of the commercial banks in Nigeria. The study recommends the need for government to develop our financial sector towards greater effectiveness and efficiency. Also, there is need to revisit the Structural Adjustment Programme with a view to enhance efficiency by altering the structure. More generally, the Nigerian experience shows that although the long run positive benefits of financial liberalization are indisputable, the short-term costs may be substantial if the conditions needed for a deregulated financial system to work properly are not in place before a step in this direction is taken.


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Table of content


1.1      Background to the Study

1.2      Statement of the Problem

1.3      Objectives of the Study

1.4      Research Questions

1.5      Research Hypotheses

1.6      Significance of the Study

1.7      Scope and Limitation of the Study

1.8      Organization of Study


2.1      Theoretic Framework

2.2      Sector Reforms in Nigeria

2.3      Financial Sector Reforms and Development

2.4      Financial Sector Reforms and Interest rate Regime

2.5      Condition Facilitating Banking Sector Reforms

2.6     Dual Effects of Financial Sector Reform

2.7      Financial Sector Reforms and banking Performance

2.8      Financial Sector and economic Growth


3.1      Introduction

3.2      Research Design

3.3      Restatement of Research Hypotheses

3.4      Model Specification

3.5      Population of study

3.6      Sample and sampling Method

3.7      Source of Data

3.8      Statistical Test

3.9      Method of Data Analysis


4.1      Introduction

4.2      Model Specification

4.3      Estimation Techniques

4.4      Data Presentation

4.5      Discussion of Results


5.1      Summary of Findings

5.2      Conclusion

5.3      Recommendations




1.1    Background to the Study:

Banking reforms are viewed as government intervention in the banking industry to provide a panacea for existing anomalies in the banking sector. Countries reform their banking sectors for a number of reasons, including structural, capitalization and ownership issues (Ogbunuka, 2005). Most importantly, banking reforms are geared towards financial development in: all ramifications and this would inevitably boost economic performance.

According to Ajayi (2005), 'banking reforms involve several elements that are unique to each country based on historical, economic and institutional imperatives.  Banking reforms are implemented to enhance the intermediation role of banks.  The reforms ensure that banks are well positioned to greatly mobilize savings and optimally allocate these mobilized savings in form of credit to profitable investments.  These investments are of cognizance to the development process of a nation as provided in the framework of the dual-gap analysis.

Banking is dynamic and it has evolved over the years changing with developments and the needs of the society.  In Nigeria, banking in its modern form started in 1892 when African Banking Corporation (ABC) commenced formal banking business in the country. African Banking Corporation (ABC) was later changed to British West Africa, known today as First Bank of Nigeria Plc. (Somoye, 2008).

The period 1927 to 1951, recorded a boom in the establishment of indigenous banks, which was followed by a burst as twenty-two of the 25 indigenous banks failed within the period. The bank failure of this era resulted from the absence of banking regulation, inadequate capital, paucity of qualified personnel, poor credit administration etc. The need, thus, arose for a framework for the regulation and supervision of banking business in Nigeria. That gave rise to the enactment of the Banking Ordinance of 1952.  Subsequently efforts at strengthening the regulatory framework resulted in the enactment of the following banking legislations, The Central Bank of Nigeria ACT of 1958, The of 1969, Nigeria Deposit Insurance Corporation Act of 1988, The CBN ACT of 1991, which also amended and repealed the Act of 1958, Banks and other financial institutions Act of 1991, which also amended and repealed the Banking Act of 1969. (Somoye, 2008).

In the last decades, banking sector reform policies have been implemented in a wide range of developing countries. 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 bottlenecks that may inhibit the functioning of institutions for growth and its achievement of core objectives in the drive towards enhancing and social the economic arid social imperatives of human endeavour. Carried out through either government institutions or private enterprises, reforms become inevitable in the light of the global dynamic exigencies and emerging landscapes. (Azeez and Ojo, 2012).

The last two decades have witnessed several significant reforms and developments in Nigeria financial services sector. As a result of the various financial sector reforms carried out since the late 1980s, the nation's banking system has undergone remarkable changes in terms of the number of institutions, ownership structure, as well as depth and bread of the market.  The reform had been influenced largely by challenges posed - by deregulation, globalization, technological innovations, and adoption of supervisory and prudential requirement that confirms to international standard, (Azeez and Ojo, 2012).

In Nigeria, there were four phases of banking sector reforms since the commencement of SAP (Structural Adjustment Programme). The first is the financial system reforms of 1986 to 1993 which led to deregulation of the banking industry that hitherto was dominated by indigenized banks that had over less percent federal and state government stakes, in addition, 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 that necessitates another round of reforms de-signed to manage this distress. The third phase began with the advent of civilian democracy in 199 which saw the return to liberalization of the financial distress which necessitated another round of reforms, designed to manage. This era also saw the introduction of Universal banking which empowered the banks to operate in all aspect of retail banking' and non-banking financial markets. The fourth phase began in 2004 to date and it is informed by the Nigerian Monetary Authorities who assented 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 (Balogun, 2007).

The current reforms are part of the broader and 'on-going national economic reforms. The primary objective of the reforms is to guarantee an efficient and sound financial system, the reforms are designed to enable the bank system develop the required renitence to support the economic development of the nation by efficiency performing its functions, as the fulcrum of financial intermediation (Lemo, 2005).  Thus the reforms were to ensure the safety of depositor's money position banks to play active developmental roles in the Nigeria economy and become major players in the sub-regional and global financial markets. Although these reforms have been acclaimed to be necessary it is however debatable if they yielded the anticipated resulted.  The thrust of this study therefore, is to assess the effect of banking sector- reform and "impact of banks" 'performance in Nigeria.

1.2    Statement of Problem

Over the years, the banking sector in Nigeria has been unable to significantly support the long-term financial needs of the real sector. This is 'in spite of the fact the growth of the national economy hinges on the extent to which the real sector is effectively supported by the banking and finance sector, which playa catalytic role in the growth process. Most investments in the real sector are of medium to long- term nature to mitigate the financial weakness in the economy the best practice is to imbibe financial sector reform or banking sector reform in most depressed economy as experienced in Nigeria over the decades. (Soludo, 2005).(project topics   final year project topics )

Banking sector reform and its sub-component, bankingconsolidation, has resulted from deliberate policy responses to correct perceived "or impending banking sector crises and subsequent failures.  A banking crisis can be triggered by the preponderance of weak banks characterized by persistent illiquidity, insolvency, under capitalization, high level of non-performing loans and weak corporate governance among others, as observed in the Nigeria case (Uchendu, 2005). Added to this, highly open economies, especially, those with weak financial infrastructure can be very vulnerable to banking crises emanating from other jurisdiction through the contagion effect. A combination of many of these weak elements could jeopardize the health of the' financial system.  Similarly, Abdullahi (2012) and Okoroji (2013) perceive that the cause of distress in the banking sector has often been attributed awkward supervision and weak framework for policy design and implementation. At, the heart of economic' reforms therefore is the need to address a two-fold problem: restructure or get policy incentives right as well as restructure key implementation institutions such as Banking Sector. 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.

1.3    Objectives of the Study:

The primary objective of the study is to examine the Banking sector reforms on their performance in Nigeria. The specific objectives are as follows:

I.       To examines the role of-the banking system in the economy

II.      Identify the rationales for banking system Nigeria

III.     Examine the outcomes of financial sector reforms in Nigeria.

IV.     Assess the impacts of reforms on savings mobilization, growth m real interest rates and other economic development indices.

V.      Ascertain the nature and magnitude of the contribution of reforms to the investments and the growth of Nigeria economy over periods.

1.4    Research Questions

In order to examine the effect of Banking sector reforms and their performance on the economy of Nigeria, the following questions are relevant to this study.

I.       What impacts has banking sector played on the economy of Nigeria?

II.      What are the rationales for banking sector reform in Nigeria?

III.     Will the outcome and impact of financial sector reforms in Nigeria?

IV.     What are the effects of financial sector reforms on saving mobilization real interest rates and economic development?

V.      Will the reform magnitudes has multiplier effect on investments and real sector of the economy?

1.5    Research Hypotheses

The following hypotheses are formulated for the study.

Hypothesis One

H0:    There is no significant relationship between banking sector reform and banks performance in Nigeria.

H1:    There is significant relationship between banking sector reform and banks performance in Nigeria.

Hypothesis Two

H0:    There is no significant relationship between Banking sector reforms and growth of the real sector in Nigeria

H1:    There is significant relationship between Banking sector reforms and growth of the real sector in Nigeria

Hypothesis Three

H0:    There is no significant relationship between Banking sector reforms and growth of the private sector investment in Nigeria.

H1:    There is significant relationship between Banking sector reforms and growth of the private sector Investment in Nigeria

1.6    Significance of the Study:

For more than four decades after independence, the Nigeria financial system was repressed, as evidenced by ceiling on interest arid credits expansion, selective credits policies, high reserve requirements, and restriction on entry into the banking industry. Thus situation inhibited the functioning of the financial system and especially constrained its ability to mobilize savings and facilitates productive investment

The research study will be significant to several groups of people on Nigerian economy these include the policy makers that banking sector reform could reinvigorate the economy from the shackles of depression; thus, investors will also be highlighted about the positives effects of banking sector reform in Nigeria, with this, individual savers in the society will be rest assured about their investment and saving in various batiks. Finally it will contribute to knowledge to current articles and help upcoming researchers in benefiting from making references from the research pieces.

The study is thus unique; in that will riot only x-ray the reasons for financial sector reform. It will also highlight the outcomes of financial sector reforms in Nigeria with a view to validating its impact on savings mobilization growth in interest rates, and other economic development indices in the last years of current banking sector reform.  This study will therefore contribution to knowledge and also provide a basis for further research development.


This research work will cover the pre-reform and the post-reform periods of the

Central Bank of Nigeria on reforms and consolidation of the commercial banks in Nigeria.


The study will be organized into five main chapters. Chapter one provides the introductory part of the study and includes the statement of the problem, objectives of study, research questions, significance of study, research hypotheses, methodology of study, scope and limitation of study and organization of study.

Chapter two provides literature review and theoretical framework to this -study.

Chapter Three focused on research methodology and technique of data collection. Chapter four provides the presentation and analysis of data. Also, it includes the test of hypotheses and finally chapter five which is the concluding part of the research work includes; summary of findings, conclusion and recommendations of the study. However, suggestion for further research maybe added in this part.




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