Banking Sector Consolidation: Implications for Banks' Performance in Nigeria
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This paper investigates the effect of consolidation on banks' performance in Nigeria. In order to achieve the objective, gross profit, capital base, real GDP, financial deepening, interest rate, and the inflation rate of five (5) deposit money banks were selected and analysedusing the non-linear autoregressive and distributed lag (NARDL) method. The result shows that only capital base has both short run and long run asymmetry with bank performance. This was evidenced in the Zenith bank model result. Also positive shock in capital base exerted positive effect on performance in Zenith, UBA and Eco banks while positive shock in capital led to negative effect on the performance of FCMB and Diamond banks. The result also revealed the absence of asymmetry between real GDP, financial deepening, interest rate, inflation and banks' performance in all the five model studied. This implies that shocks in these variables exerted less influence on the performance of the banks. This study also found that 99%, 94%, 81%, 78% and 57% of the change in profits was determined by the level of capitalisation for Zenith, Eco, UBA, FCMB and Diamond Banks respectively. The implication of the result is that a strong capital base (consolidation) enhances banks' profitability in Nigeria. Based on these findings, this study recommends that banks should regularly go through periodic capital base reviews in order to enhance their performance in Nigeria's dynamic financial market.