Financial Sector Reforms, Macroeconomic Instability and the Order of Economic Liberalization: the Evidence from Nigeria

Financial sector reforms, macroeconomic instability and the order of economic liberalization: The evidence from Nigeria

By

Sylvanus I. Ikhide and Abayomi A. Alawode

Department of Economics Obafemi Awolowo University Ile-Ife, Nigeria

AERC Research Paper 112 African Economic Research Consortium, Nairobi November 2001

© 2001, African Economic Research Consortium.

Published by: The African Economic Research Consortium P.O. Box 62882 Nairobi, Kenya

Printed by:

The Regal Press Kenya, Ltd. P.O. Box 46116 Nairobi, Kenya

ISBN 9966-944-53-2

Contents

List of tables Abstract 1. 2. 3. 4. 5. 6. Introduction Literature review and theoretical framework Method of analysis The sequencing of liberalization in Nigeria Empirical results Relevance of empirical analysis for sequencing of financial sector reforms Conclusions Agenda for future research 1 3 8 12 17

21 26 27 28 30 31 32

7. 8.

References Appendix A: Feasible sequencing of financial liberalization programmes Appendix B: Sequencing of financial liberalization in Nigeria Appendix C: Summary of major provisions of the guidelines on bank assets and risk weights

List of tables

1. 2a. 2b. 3. 4. 5. 6. 7. Some macroeconomic indicators Non-performing loans/frauds in the Nigerian banking industry Risk exposure of Nigerian commercial banks Discriminant analysis (1980–86 vs 1987–93) distressed banks Discriminant analysis (1980–86 vs 1987–93) non-distressed banks Discriminant analysis (distressed vs non-distressed) 1980–1986 Discriminant analysis (distressed vs non-distressed) 1987–1992 Composite bank score index 1 15 15 18 18 18 19 20

Abstract

Financial sector reforms began in Nigeria with the deregulation of interest rates in August 1987. Since then, far-reaching policy measures including the chartering of new banks, reform of the capital market and a move from direct to indirect monetary controls have been undertaken. The results from the implementation of the reforms have been...