The Effect of Financial Reforms on Banking Performance in an Emerging Market: Nigerian Experience

Abstract

The paper examines effect of financial reforms on banking performance in emerging market: Nigerian experience. The study covers between 1992 and 2011, because the last reform in banking sub-sector was in 2005 during Prof. Charles Soludo as CBN governor (Pre-Lamido era). Automated Statistical Package Technique (ASPT) was used to analyze the model and Ordinary Least Square method was adopted to analyze existing relationship of variables and their behaviors. The study reveals that the effect of financial reform on banking performance is mixed. It was discovered that financial reform is not a causal factor for effective banking performance and development; but there is need for strong capital account policy to regulate short- term capital flow and exchange rate volatility. In addition, the Central Bank of Nigeria (CBN) should ensure the stabilization of financial markets and banks in order to control and manage risk aversion among domestic and foreign investors in the economy. The paper further recommends non-stopping reforms in the financial sector so as to serve as check and balances, which would be used to manage and control economic distortion’s trend in the financial sector. Moreover, policymakers such as Monetary Policy Committee (MPC); regulatory government ministries, departments and agencies (MDAs) such as Ministry of Finance, CBN, Nigerian Deposit Insurance Corporation (NDIC), etc. should adopt economic policies that could strengthen and promote allocation of efficient resources to achieve efficient bank performance in Nigeria.

Keywords: Financial reform, Banking, Deregulation, Financial markets, CBN, NDIC, Nigeria.