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Financial intermediation in the pre-consolidated banking sector in Nigeria

  • Hesse, Heiko

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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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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  1. Beck, Thorsten & Hesse, Heiko, 2006. "Bank efficiency, ownership, and market structure : why are interest spreads so high in Uganda ?," Policy Research Working Paper Series 4027, The World Bank.
  2. Lewis, Peter & Stein, Howard, 1997. "Shifting fortunes: The political economy of financial liberalization in Nigeria," World Development, Elsevier, vol. 25(1), pages 5-22, January.
  3. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
  4. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
  5. 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.
  6. Maria Soledad Martinez Peria & Ashoka Mody, 2004. "How foreign participation and market concentration impact bank spreads: evidence from Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 511-542.
  7. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
  8. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  9. Laeven, Luc & Levine, Ross, 2005. "Is There a Diversification Discount in Financial Conglomerates?," CEPR Discussion Papers 5121, C.E.P.R. Discussion Papers.
  10. Laeven, Luc & Majnoni, Giovanni, 2003. "Does judicial efficiency lower the cost of credit:," Policy Research Working Paper Series 3159, The World Bank.
  11. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October.
  12. Richard Podpiera & Martin Cihák, 2005. "Bank Behavior in Developing Countries; Evidence From East Africa," IMF Working Papers 05/129, International Monetary Fund.
  13. 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.
  14. Beck, Thorsten & Cull, Robert & Jerome, Afeikhena, 2005. "Bank privatization and performance - emprical evidence from Nigeria," Policy Research Working Paper Series 3511, The World Bank.
  15. repec:ner:tilbur:urn:nbn:nl:ui:12-3125503 is not listed on IDEAS
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-3508410 is not listed on IDEAS
  17. Beck, Thorsten & Fuchs, Michael, 2004. "Structural issues in the Kenyan financial system: improving competition and access," Policy Research Working Paper Series 3363, The World Bank.
  18. repec:ner:tilbur:urn:nbn:nl:ui:12-3125518 is not listed on IDEAS
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