An Empirical Analysis of the Main Determinants and the Relative Contributions of Changes in Bank Capital Base to the Efficiency of Nigerian Commercial Banks

Abstract

The paper examined and analyzed the main determinants and the changes in capital base to the efficiency of Nigerian Commercial Banks. The study utilized secondary data covering 16 years on the commercial banks in existence between 1992 and 2007. Data on key performance indicator of the banks such as total income, interest rates, total credits, and branch networks were sourced from the “fact books” published by the Nigerian Stock Exchange (NSE) and official publications of the selected banks. Econometrics techniques were used to appraise the main determinants and the relative contributions of changes in capital base to the efficiency of Nigerian Commercial Banks over the studied period. The results showed that capital base requirement was ineffective in reducing distress in the banking industry. More important, bank capital was a major determinant of bank performance and efficiency. Also, the capital base requirement by the Central Bank of Nigeria lagged behind the average capital base of the banks. The study concluded that the Central Bank of Nigeria could use the regulatory power of raising the capital base of banks to stimulate greater profitability and efficiency in the banking sector.

Keywords: Efficiency, Bank Performance, Banking Reforms, Capital Adequacy, Commercial Banks, Nigeria.