THE IMPACT OF BANKING SECTOR REFORMS ON BANKS EFFICIENCY: EVIDENCE FROM THE EFFICIENCY MODEL

There is a growing concern associated with the recent banking sector reform on whether it
achieved its purpose of making banks· sound or whether it led to inefficiency of banks.
Consequently, this study examined the impact of the banking sector reforms on banks'
performance and efficiency in two time periods (pre -consolidation period' and post -
consolidation). To evaluate this, the researcher adopted a non-parametric (Data Envelopment
Analysis) approach, and the factors that determine efficiency was examined. The findings
revealed varying levels of efficiency in both periods. Although some banks still remained
inefficient, there was a general improvement in efficiency in the post-consolidation period. The
ranking of banks showed that the banks that were able to achieve the N25billion capitalization
on their own (without relying on merger) and the banks that were among the largest, were
among the least efficient. More so, the study found that the CAMEL parameters are influencing
factors of efficiency, and that no single parameter can capture the holistic efficiency of banks. In
the light of this, the researcher recommends the simultaneous consideration of the CAMEL
parameters when proposing subsequent reforms and continuous examination of banks. Stringent
measures should be taken by the Central Bank in the supervision of banks such that no bank is
overlooked. Commercial banks in Nigeria should adopt the Baste II prescription of capital
adequacy and the CAMEL parameters should not be increased beyond optimal level as it leads
to a decline in efficiency.