Trend Analysis of the Effect of Capital Base Requirement on Profit Generating Capacity and Operational Efficiency of Selected Commercial Banks in Nigeria

Abstract

The study examined the trends and patterns of change in the capital levels and efficiency of Nigerian Commercial Banks. This was with a view to providing empirical information on the relationship between capital base requirements and profit-generating capacity and efficiency of the banks. The study utilized secondary data covering 16years on the commercial banks in existence between 1992 and 2007. Data on key performance indicators 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. Descriptive statistical techniques were used to appraise the trends and patterns of the key performance indicators in relation to changes in capital base of the banks over the studied period.

The results showed that capital base requirement was ineffective in reducing distress in the banking industry. 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: Banking Reforms, Capital Adequacy, Intermediation, Trend Analysis, Commercial Banks, Nigeria.