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Financial intermediation in the pre-consolidated banking sector in Nigeria

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  • Hesse, Heiko

Abstract

This paper uses unique bank-by-bank balance sheet and income statement information to investigate the intermediation efficiency in the Nigerian pre-consolidated banking sector during 2000-05. The author analyzes whether the Central Bank of Nigeria's policy of recent banking consolidation can be justified and rationalized by looking at the determinants of spreads. A spread decomposition and panel estimations show that the reform of the banking sector could be the first step to raise the intermediation efficiency of the Nigerian banking sector. The author finds that larger banks have enjoyed lower overhead costs, increased concentration in the banking sector has not been detrimental to the spreads, both increased holdings of liquidity and capital might have led to lower spreads in 2005, and a stable macroeconomic environment is conducive to a more efficient channeling of savings to productive investments.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4267.

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Date of creation: 01 Jun 2007
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Handle: RePEc:wbk:wbrwps:4267

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Keywords: Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Financial Crisis Management&Restructuring; Investment and Investment Climate;

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References

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  1. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(7), pages 1791-1812, July.
  2. Lewis, Peter & Stein, Howard, 1997. "Shifting fortunes: The political economy of financial liberalization in Nigeria," World Development, Elsevier, Elsevier, vol. 25(1), pages 5-22, January.
  3. Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "Determinants of commercial bank interest margins and profitability : some international evidence," Policy Research Working Paper Series 1900, The World Bank.
  4. Beck, T.H.L. & Fuchs, M., 2004. "Structural issues in the Kenyan financial system: Improving competition and access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508410, Tilburg University.
  5. Claessens, Stijn & Laeven, Luc, 2004. "What Drives Bank Competition? Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(3), pages 563-83, June.
  6. Martinez Peria, Maria Soledad & Mody, Ashoka, 2004. "How foreign participation and market concentration impact bank spreads : evidence from Latin America," Policy Research Working Paper Series 3210, The World Bank.
  7. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, Elsevier, vol. 63(1), pages 113-134, October.
  8. Beck, Thorsten & Cull, Robert & Jerome, Afeikhena, 2005. "Bank privatization and performance - emprical evidence from Nigeria," Policy Research Working Paper Series 3511, The World Bank.
  9. Heiko Hesse & Thorsten Beck, 2006. "Bank Efficiency, Ownership and Market Structure,Why are Interest Spreads so High in Uganda?," Economics Series Working Papers 277, University of Oxford, Department of Economics.
  10. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  11. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, Elsevier, vol. 85(2), pages 331-367, August.
  12. Ephraim W. Chirwa & Montfort Mlachila, 2004. "Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 5.
  13. Richard Podpiera & Martin Cihák, 2005. "Bank Behavior in Developing Countries," IMF Working Papers 05/129, International Monetary Fund.
  14. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, Elsevier, vol. 19(6), pages 813-832, December.
  15. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 25(5), pages 891-911, May.
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Cited by:
  1. Lisa D. Cook, 2011. "Were the Nigerian Banking Reforms of 2005 A Success ... And for the Poor?," NBER Working Papers 16890, National Bureau of Economic Research, Inc.

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