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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.

Suggested Citation

  • Hesse, Heiko, 2007. "Financial intermediation in the pre-consolidated banking sector in Nigeria," Policy Research Working Paper Series 4267, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4267

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    References listed on IDEAS

    1. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Beck, Thorsten & Cull, Robert & Jerome, Afeikhena, 2005. "Bank privatization and performance: Empirical evidence from Nigeria," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2355-2379, August.
    7. 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.
    8. Claessens, Stijn & Laeven, Luc, 2004. "What Drives Bank Competition? Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 563-583, June.
    9. 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 1-5.
    10. Richard Podpiera & Martin Cihak, 2005. "Bank Behavior in Developing Countries; Evidence from East Africa," IMF Working Papers 05/129, International Monetary Fund.
    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. 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.
    13. 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.
    14. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1791-1812, July.
    15. 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.
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    Cited by:

    1. Fungáčová, Zuzana & Poghosyan, Tigran, 2011. "Determinants of bank interest margins in Russia: Does bank ownership matter?," Economic Systems, Elsevier, vol. 35(4), pages 481-495.
    2. repec:gam:jjrfmx:v:10:y:2017:i:2:p:9-:d:96046 is not listed on IDEAS
    3. Islam, Md. Shahidul & Nishiyama, Shin-Ichi, 2016. "The determinants of bank net interest margins: A panel evidence from South Asian countries," Research in International Business and Finance, Elsevier, vol. 37(C), pages 501-514.
    4. 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.
    5. repec:sgm:jbfeuw:v:1:y:2017:i:7:p:5-27 is not listed on IDEAS

    More about this item


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

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