Bank Consolidation and Growth of the Banking Sector: Experience from Nigerian

Abstract

This study examined the impact of bank consolidation on the growth of the Nigerian banking sector between 2005 and 2023. The study focused on three key indicators: Bank Loans and Advances (BLA), Capital Base of Banks (CBB), and Volume of Bank Stock (VBS), with Return on Equity (ROE) serving as the main measure of sector performance. An ex-post facto research design was adopted, utilizing secondary data from annual reports, regulatory documents, and market records. Multiple regression analysis was used to evaluate the significance of the relationship between the selected variables and banking sector performance. Findings revealed that while bank consolidation contributed to structural adjustments within the sector, its direct impact on performance, as measured by ROE, was statistically insignificant. Specifically, bank loans and advances had a positive but weak effect (Coef.= 0.846959, prob.= 0.4103), capital base showed a negative relationship (Coef.= -1.711205, prob.= 0.1076), and volume of bank stock indicated a marginal positive influence (Coef.= 0.709431, prob.= 0.4889). The study concludes that the success of consolidation efforts depends on broader institutional and economic reforms, including enhanced operational efficiency, better credit risk assessment, and a stable macroeconomic environment. Without these supporting factors, consolidation alone may not yield significant financial performance improvements. It was recommended that regulatory authorities should ensure future consolidation exercises are supported by strong post-merger integration strategies, focusing on effective credit management, capital deployment, and organizational alignment to maximize the long-term benefits of banking reforms.