The Impact of Banking Consolidation on the Economic Development of Nigeria

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