The Technical Efficiency of Nigerian Banks: Literature Review

Bhattacharyya, Bhattacharyya and Kumbahakar found that deregulation and liberalization had a major impact on productivity and efficiency increase in various industries and the banking sector in some Eastern and Central European countries as well as China. Berg, Forsund and Jansen found that in Norway during 1980-89 the productivity of banks declined initially but eventually rose. Zaim reported efficiency gains in Turkish banks after the 1980 liberalization programme. In the case of Korea, Gilbert and Wilson found that most Korean banks experienced efficiency gains between 1980 and 1994 when government controls were lifted. It was however found that in the US and Spain, deregulation resulted in decline in efficiency (Humphrey and Pulley, 1997; Grifell-Tatje and Lovell, 1996).
In Nigeria, there have been some empirical a t t empts to assess the performance of the financial sector reforms (Ikhide and Alawode, 1994; Ikhide, 1998; Nyong, 2005). Most of the studies done for the Nigerian banking system, however, merely looked at the effect of liberalization on interest rate spread, transaction costs in assessing the impact of financial liberalization on the banking system. (Onwioduokit and Adamu, Adeoye and Adewuyi ). There was no effort at generating efficiency scores, which can be used as dependent variable against a set of explanatory variables.
Nyong however, went beyond these traditional ways of looking at the efficiency of the banking system. He used data for 18 banks to get efficiency scores for Nigeria for 2002/2003. However, the study looked at only one period which fell within the period of financial liberalization in Nigeria and used few banks. payday loan lenders
This study is an attempt at investigating the level of efficiency of individual banks in Nigeria by quantifying the technical efficiency of these banks. It will use a cross section of 67 banks made up of commercial and merchant banks; and four periods that include pre- and-post financial liberalization era. This will provide insight into the level of resource utilization by these banks in the process of financial intermediation before and during liberalization. It will also provide further insight into the consolidation and reform policies of the CBN, and lend credence or otherwise to the present reforms in the Nigerian banking sector. It will show whether most of the banks declared problematic by the Sanusi-led CBN were already showing signs of declining technical efficiency long before Soludo started the consolidation programme. 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.
The rest of the paper is organized in five sections. Section II discusses the theoretical framework and literature review; section III is the analytical methodology, while section IV is the empirical results and analysis. Section V concludes the paper.