THE EFFECTS OF FINANCIAL DEREGULATION ON MARKET STRUCTURE AND COMPETITION: THE CASE OF NIGERIAN COMMERCIAL BANKS

THE EFFECTS OF FINANCIAL DEREGULATION ON MARKET STRUCTURE AND COMPETITION: THE CASE OF NIGERIAN COMMERCIAL BANKS

 

ABSTRACT

The structure and regulation of a country’s financial markets and institutions have been the focus of considerable policy attention for a number of economic and political reasons. Banks and other financial institutions encourage and collect the savings that finance a country’s economic growth. Thus playing an integral role in transmitting the government’s monetary and credit policies to the rest of the economy. The banking industry, particularly commercial banking (with over 80% of total deposits) are effectively regulated as a means to provide subsidized credit or services to targeted groups and to protect particular groups from such activities as cut-throat competition, hostile takeovers, and expropriation. No doubt, such restrictive regulatory policies, regarded as “financial repression” had to some extent contributed to the nation’s development programmes, particularly in the agricultural sector and the small scale industry. However, these regulatory policies were believed to have had their costs on the banking system’s competitiveness, efficiency and performance. Economic theory suggests that provided there are no externalities, the competitive price is efficient. This theory is also applied to financial markets, looking at the supply of funds, the demand for funds, and the market clearing interest rate. Thus, recent research works in development finance have advocated that financial markets need to be fully liberalized from the “interference” of governments so as to improve the efficiency of resource allocation. The study, thus, made an attempt to investigate the effects of deregulation measures on the performance of the commercial banking sector. In particular the study evaluated the extent to which deregulation policies affected structure, efficiency and competition in the commercial banking market. To accomplish this objective, in the context of Nigerian commercial banking system, three hypotheses were tested using data from 18 commercial banks and other publicly available data from the Central Bank of Nigeria, National Deposit Insurance Corporation and Securities and Exchange Commission. The major finding of the study is that the link between market structure and efficiency, on one hand, and the relationship between entry and competition on the other, were weak and not in conformity with stated theoretical objectives. The study also concludes that the Nigerian banking sector is over concentrated with the three largest banks accounting for over 60% of deposits, from the inception of financial reforms to date. The study thus recommended a pro-competitive policy to facilitate inter-bank rivalry among the leading banks which continue to dominate the system, and the entry or creation of new banks with a reasonable number of branches to minimise the current over- concentration of the market. Furthermore, there is a need to increase the number of institutions that compete for deposits by promoting the entry of non-bank financial institutions. Further research into the assessment of deregulation and various parameters of banking efficiency, could be carried out using the translog cost equation. The methodology would allow the researcher to identify best practice banks and thus might be useful in decisions regarding merging and closing of banks.

 

TABLE OF CONTENT

Title page- – – – – – – – – i
Approval page – – – – – – – -ii
Dedication – – – – – – – – -iii
Acknowledgement – – – – – – – -iv
Abstract – – – – – – – – – -v
Table of content – – – – – – – -vi

CHAPTER ONE
INTRODUCTION – – – – – – – -1
1.0 Background of the study – – – – -1
1.1 Statement of the problem – – – – -5
1.2 Purpose of the study – – – – – -6
1.3 Significance of the study – – – – -8
1.4 Research questions – – – – – -9
1.5 Scope of the study – – – – – – -10

CHAPTER TWO

LITERATURE REVIEW – – – – – – -11

CHAPTER THREE

Research methodology – – – – – – -39
Design of study – – – – – – – -40

CHAPTER FOUR

Presentation, analysis and interpretation of data – -48

CHAPTER FIVE

Summary of findings – – – – – – -60
Conclusion – – – – – – – – -61
Recommendations – – – – – – – -62
Suggestions for further research – – – – -64
References – – – – – – – – -65
Appendix I – – – – — – – – -68
Questionnaire. – – – – – – – -69

THE EFFECTS OF FINANCIAL DEREGULATION ON MARKET STRUCTURE AND COMPETITION: THE CASE OF NIGERIAN COMMERCIAL BANKS

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