The Technical Efficiency of Nigerian Banks: Conclusion

Some banks that had collapsed by 1995 showed very low levels of efficiency in 1985. Infact, their efficiency scores were all below the industry average of 57% in 1985 except Lobi bank which was efficient.
Most of these banks were publicly owned suggesting that ownership of the banks may have affected their efficiency levels. Example of such banks and their efficiency levels are ACB (41.8%) National (16.5%), Progress (53.6%), Nigeria-Arab (24.0%), ICON (39.8%) Owena (28.9%), Allied (30.9%). The result also shows that none of the consistently efficient banks was publicly owned. They are all privately owned banks. Of the efficient banks, two out of ten were publicly owned in 1985, all were privately owned banks in 1995, one out of thirteen were owned by government in 2000; while in 2003 none of the efficient banks was owned publicly. Infact, the public banks that did not collapse within the period are either having a continuously declining efficiency level e.g Trade and Gate way banks; or have efficiency levels below the industry average of the various periods. This result suggests that privately owned banks are more efficient than publicly owned banks.
In this study we made an attempt to investigate the extent of resource use efficiency of a cross section of 67 Nigerian banks. Data Envelopment Analysis, a non- parametric approach was used to evaluate the efficiency of the banks. Data for four periods namely 1984/1985, 1994/1995, 1999/2000 and 2003/2004 were used for the analysis.
It shows that liberalization had a mixed effect on the efficiency of individual banks in Nigeria. While some banks had their efficiency scores continuously on the increase, others had theirs on the decrease continuously; while a third group had fluctuating efficiency scores. Furthermore, there appears to be efficiency differentials among banks in Nigeria with the privately owned banks appearing more efficient than the publicly owned banks. The result also shows that the percentage of the efficient banks were on the decline within the periods of study. Finally, it seems that the big banks like First bank, Union bank showed higher levels of efficiency than the smaller banks. payday loans no checking account
The results show that there is a lot of output loss and underutilization of resources among Nigerian banks.
The findings suggest that it is important to encourage international banking as all the foreign banks were efficient in the periods they were used. Banks should harness their underutilized resources, which can be used in the production of new (non-traditional) variety of products.
Soludo and Sanusi (Central bank of Nigeria governors) may not after all be wrong in undertaking the various consolidation exercises. The 2006 consolidation exercise may nave succeeded in rooting out inefficient banks from the system thus, making sure that resources were better utilized by more efficient banks. The “one size fit all” type of banking should be discontinued as some banks may not cope with the level of competition required of them to remain in business. Thus, the present categorization of banks by CBN is a welcome development. The study also shows that almost all the merchant banks used were inefficient. Thus, the reintroduction of merchant banking in Nigeria should be done with caution. Finally, the ability to quantify efficiency and productivity provides management with a control mechanism with which to monitor the performance of production units under its control: in this case the banks.