The African Financial Review July-August 2014 | Page 20

them merged into 24 banks while 14 that could not finalize their
consolidation before the expiration of deadline were liquidated.
Because of the apparent advantage of efficiency related benefits,
the banking industry has experienced an unprecedented level
of consolidation as mergers and acquisitions among financial
institutions have become a general phenomenon globally. For
instance, between 1993 and 1996, about 1500 mergers were
recorded in the USA, similar experience was observed in the
Europe and Asian continents (Lemo, 2004).

To a large extent, this consolidation is based on a belief
that gains accrue through expenses reduction, increased market
power, reduced earnings volatility, and scale and scope economies.
However, the characteristics of the kind of reforms induced
mergers and acquisition of the banking industry creates doubts
about its potentials of realizing efficiency gains. A deeper look at
the 24 banks that emerged after the consolidation shows that most
banks that were regarded as distressed and unsound regrouped
under new names or fused into existing perceived strong banks
not necessarily to correct the inefficiency in their operating system
but just to meet the mandatory requirement to remain afloat and
to continue business as usual. While this consolidation no doubt
has benefits, what is less clear is the effect of this consolidation on
the operating efficiency of the banks. In view of this observation,
certain issues arise on the desirability or otherwise of this imposed
‘one fit all consolidation’ exercises: will the increase in market
power creates monopoly which theoretically increase price (bank
interest rates) and reduce output (financial intermediations)?
(Soludo, 2004).

Sanusi was appointed the governor of the Central Bank
of Nigeria (CBN) in July, 2009. His entry is a switch in his
career, from the regulated in the banking system to become a
regulator, the background which equipped him with first-hand
knowledge of the banking system in Nigeria. On assumption
of office, Sanusi recognized continuous weakness in the system
despite the recapitalisation of 2005. He identified weak corporate
governance, operational indiscipline and global financial crisis as
the major causes of the weakness and prescribed further decisive
reforms to forestall total collapse of the sector. The weakness of
the financial system was earlier recognized in 2004 by Soludo,
who took pragmatic steps to revolutionise the banking sector
with the re¬capitalisation project through which Nigerian
banks were pruned from about 89 to 24 with minimum capital
requirement moved from N2 billion to N25 billion at the end of
2005. The core of the reform was to establish reliable and efficient
banks that could guarantee depositors’ money. By 2009, it was
discovered that Nigerian banks could no longer conveniently
fulfil their obligations to depositors, a situation which suggested
that banking consolidation of 2005 was concluded on false
declarations and fraud, lack of depth and almost qualified as a
wasteful application of national human, financial and material
resources. In essence, the supposed consolidation succeeded as a
mere marriage of incompatible banks. The era brought significant
corporate indiscipline, fraud and discriminatory practices into
banking operation and regulation in Nigeria. Unlike elsewhere
in the world, Nigerian banks became obviously disconnected
from the rest of the economy and the supposed core mandate as
a transmission channel of monetary policies. Nigerian banks were
scarcely able to commit themselves to transparent and responsible
investments. The system could not guarantee credit flow to the
real sector of the economy, specifically, manufacturing, agriculture
and the small and medium scale enterprises that are critical to

20 | The African Financial Review

employment and income generation which are strategic to poverty
alleviation. The catalytic growth acclaimed by Nigerian banks
without equivalent experience in the real sector, thus, only passes
for a mere deception. The truth is that growth of the sector should
logically correlate with that of the economy within which it
functions.

Sanusi’s entry into the system with his wealth of experience
from the regulated side of the “coin” critically redefined the
banking sector, including governance, operations and systems
ethics (Sanusi, 2009). His administration is critical of lack of
transparency in the manner recapitalization was implemented
with doubt over whether or not banks actually raised fresh capital
as claimed. Contrary to much criticism that greeted Sanusi’s
appointment as the CBN governor and much more his policy
responses to correct the ills identified in the Nigerian banking
system, the results of his efforts have gained both local and
international applause in a short time. Sanusi has won national,
continental and global awards for excellence within a short period.
These awards are core indications that Sanusi is effectively leading
in reversing significant capital flight experienced in the economy
during the global financial crisis and Nigerian stock market crash.
It is important to re-emphasise the obvious, however, that overall
gains of reforms will be lost if the current state of the nation is
not urgently addressed. The Sanusi initiative, which is currently
drawing accolades from the world, is not enough to correct the
bad state the Nigerian economy found itself without an enabling
environment for real sector revival and business restoration put
in place to encourage unrestrained flow of foreign and domestic
investments. Political stability is also non-negotiable as no investor
will bring money into a highly volatile and unsafe business
environment (Imala, 2005). Hence the need to re-assess the
position of the banking sector after these major reforms.

Model specification and estimation techniques

The survey research design is used because it gives greater room
to study the subject matter and ensures that inferences can be
made about some characteristic, attitude, or behaviour of the
population examined in th e study. The data collected for this study
was sourced using questionnaires and a total of 100 questionnaires
were administered to bank staff. The research instrument used (the
questionnaire) is considered most appropriate because it covers
the scope implied by the subject and thus has content validity.
Each of the statements in the questionnaire was reviewed by
an expert to access the extent to which it relates to the effect of
bank reforms on the performance of banks in Nigeria. To this
end, the instrument was passed through experts who asserted
that it represents a true and fair view; therefore, the research
instrument is valid. The data collected was then analyzed using
the Statistical Packages for Social Sciences (SPSS). The method
implemented for the presentation of data includes the use of
tables, percentages and means. The hypotheses formulated were
tested using the ANOVA (Analysis of Variance) method. The
One-Way ANOVA procedure produces a one-way analysis of
variance for a quantitative dependent variable by a single factor
(independent) variable. Analysis of variance is used to test the
hypotheses to ascertain if several means are equal. The hypotheses
tested are stated below:
1. Ho There is no significant impact of bank reforms on the
performance of banks in Nigeria H1: There is a significant impact
of bank reforms on the performance of banks in Nigeria