The Impact Of Consolidation Policy On Banking Sector Profitability In Nigeria

ABSTRACT

This study analysed the effect of 2004 banking sector consolidation policy on banking industry

profitability in Nigeria. The study covered the period 1993 -2015, which was divided into the preconsolidation

period (1996-2004) and post-consolidation periods (2006-2014), with 2005 as breaking

point. Three commercial banks (Access bank, GTbank, and First bank) formed the sample size.

Profitability was proxy by PAT (profit after tax); the CAMEL (capital adequacy, asset quality,

management effectiveness, earning quality and liquidity management) index were used as drivers of

profitability. Combinations of descriptive and econometric tools were employed in analysis of collected

data. Econometric tools included Augmented Dicker Fuller (ADF), Autoregressive model (VAR),

Granger causality test, ordinary least square regression (OLS) and Chow structural stability test. The

study found that the 2004 consolidation policy led to significant improvement in the management

effectiveness of consolidated commercial banks; it was equally found that the policy did cause structural

break in the profitability trend of the Nigerian banking industry. The study recommended increased

efforts aimed at minimizing the incidence of increasing non-performing loan portfolio by individual

banks in order to maintain high assets quality levels and optimum liquidity for enhanced profitability.

Keywords: Banks, performance, consolidation, profitability, merged and stand-alone banks