FINANCIAL LIBERALISATION POLICY AND THE PERFORMANCE OF THE FINANCIAL SECTOR IN NIGERIA

FINANCIAL LIBERALISATION POLICY AND THE PERFORMANCE OF THE FINANCIAL SECTOR IN NIGERIA

ABSTRACT

The study focuses on investigating the impact of financial liberalisation policy on the performance of the financial sector in Nigeria by utilising Analysis of Covariance (structural break with mix dummy coded and continuous variables) and applying the Ordinary Least Square (OLS) technique which corrected for arbitrary levels of serial correlation. Utilising the dataset that covers the period of 1970Q1-2013Q4, the study employs domestic and external macroeconomic variables. The econometrics results show that real per capita income is positively linked to banks’ ability to lend to the private sector while trade openness may stimulate higher banks deposits and investment in the capital market if institutional qualities as well as a sound macroeconomic environment are put in place. Further, lending rate, deposit rate and inflation have a higher dampening impact on the financial sector performance in the period of financial liberalisation policy. However, the study finds that financial liberalisation policy adopted in 1987 has a significant impact on the performance of the banking sector but has no significant impact on the performance of the capital market. The study therefore provides supports for the sceptical empirical view of the policy in Nigeria that it might be associated to non-interest rate and other macroeconomic factors. Policy-wise the study suggests that since the macroeconomic variables are important factors influencing the performance of the financial sector, it is vital for government to create conducive environment that will attract foreign and boost domestic investors. At the same time so much interest on consumption should be checked in order to encourage attraction of savings in banks and investment in the capital market. Also, non-interest rate factors should be strengthened to enhance the financial sector performance rand further financial liberalisation policy along with fiscal and monetary policy discipline should be carried out to achieve positive significant performance of the capital market.