Las divergencias entre Hardin y Olson: argumentos y alcance

Several studies in recent times have employed the use of DEA to evaluate bank efficiency and performance world over. However, only a handful of these studies dwell on Nigerian DMBs. This section, therefore, reviews these studies with the view of further highlighting the suitability of the DEA technique in ascertaining banking efficiency and performance. Eriki & Osagie (2014) used DEA analysis to examine the performance efficiency of nineteen (19) commercial banks in Nigeria for the year 2009. They made use of two inputs (total assets and equity) and two outputs (interest income and gross earnings). The DEA results were based on three performance measures, the constant return to scale (CRS); variable returns to scale (VRS); and scale efficiency (SE). Out of the nineteen (19) banks in the sample, the CRS DEA model showed that only four (4) banks were efficient. Whereas based on the VRS technical efficiency scores, eight (8) banks were found to be efficient, while results revealed eleven (11) inefficient banks. Likewise, an examination of the scale efficiency (SE) of the banks revealed that only four (4) were scale efficient while fifteen (15) were found to be scale inefficient. In summary Eriki & Osagie (2014), found out that the small and medium-sized banks in the Nigerian banking industry were more efficient than megabanks.

Muhammad (2008) utilised the DEA and Malmquist Productivity Index (MPI) to analyse the performance of Nigerian commercial banks over a five (5) year period. Following the intermediation approach, net fixed assets and total deposits were used as input variables, whereas the output variables used were total loans and advances, other earning assets and operating income. The inputs and output variables were used to analyse both the CRS and VRS approaches. And according to Muhammad (2008), the utilisation of the CRS and VRS approach was anchored on the desire to measure bank performance based on changes in efficiency and changes in technology. The study showed that the CRS and the VRS of the banks revealed continuous improvement. More so, the results on the average indicated that the banks consistently improved within the five-year period although the improvement in the third year under review appeared lower than in the other years. In addition, the study compared the performance of Nigerian banks across two ownership structures (state-owned banks and private owned banks). The results indicated that the privately owned banks performed better than the state-owned banks. He pointed out that the efficiency scores of the

82

privately owned banks were closer to 1 (100) or the best practice frontier. Additionally, to further verify the differences in the efficiency scores of the private and state-owned banks, the study measured the statistical significance of the banks using the one-sample Kolmogorov – Smirnov test. The results indicated that the differences in efficiency scores were statistically significant.

Olugbenga & Olankunle (1998) provide the first evidence on the use of the DEA in the Nigerian banking industry. Their study sought to analyse the performance of Nigerian banks within an 11-year period (1983 – 1993). The sample of 278 banks comprised of commercial and merchant banks. However, the sample contained twenty (20) commercial banks before the Structural Adjustment Programme (SAP) of 1986 and 35 commercial banks afterwards. The input variables used in the study consisted total deposits, interest paid on deposits, total capital and overhead costs, while the outputs variables included gross earnings and earning assets. The results of the average efficiency measures indicated stable efficiency levels among banks in periods leading to the introduction of the 1986 SAP. Progressively, the study suggested that the efficiency levels of the Nigerian banking industry witnessed a major upward surge between 1986 and 1987. Olugbenga and Olankunle opined that the upward surge was most probably due to the effect of the economy-wide deregulation, which affected the entire banking industry. The entire banking industry witnessed a decline in efficiency levels for the five-year period that followed (1987 – 1991). However, the banking industry started showed signs of recovery in periods after 1991.

The study by Ayadi et al., (1998) is another DEA study on Nigerian banks. The study represented an attempt to determine the bank performance and the efficiency of bank management by employing the use of the DEA model. Their study used a sample of ten (10) commercial and Nigerian merchant banks that were listed on the Nigerian Stock Exchange. The inputs used include total deposits, interest paid on deposits, and expenses on personnel and administration. While the output variables consisted of interest income, non-interest income, and total loans. The results of the study revealed that of the ten (10) commercial and merchant banks, only three (3) banks were efficient in 1991. In the same line, two (2) banks were efficient in 1992, and three (3) banks were found to be efficient in 1993. However, the results indicated that there was a decline in efficiency levels and only one bank was efficient. Owing to the results, Ayadi et al., (1998) suggested that bank supervision in the industry was weak and many of the sampled banks should have been identified by Nigerian bank regulators and appropriately liquidated. They, however, recommended that the banking

83

industry could be sanitised by improving banking supervision and by removing government interference.

Akeem & Moses (2014) empirically analysed commercial banks in the periods of 2002 to 2011 to ascertain efficiency, productivity, and growth. They used a sample of ten (10) randomly selected commercial banks. The three (3) input variables used include deposits, assets and operating expenses, while the four (4) output variables used were loans and advances, interest income, non-interest income, and investment. The results showed that seven (7) of the banks analysed were to some extent efficient and had a consistency in their performance. Over the ten (10) years of their study, the average allocative efficiency score of the sampled banks was found to be 0.896. Additionally, the results meant that the sampled banks did not efficiently maximise their inputs in the magnitudes that would minimise costs. More so, Akeem and Moses opined that the inefficiency in the sampled banks might be due to higher non-interest and administrative expenses, rising levels of interest rates, poor investment strategies, rising competition in the banking industry and the less competitive managerial services offered to bank customers at higher input prices.

Obafemi (2012) used DEA to ascertain the technical efficiency of Nigerian banks. The study made use of sixty-seven (67) commercial and merchant banks in the periods of 1984/1985, 1994/1995, 1999/2000, and 2003/2004. Obafemi claimed that the deregulation of the Nigerian banking industry had a mixed effect on the efficiency of Nigerian banks. He was of the view that the efficiency scores of some banks were continuously on the increase, while some were continuously decreasing, and the third group had inconsistent efficiency scores. Obafemi (2012) was also of the opinion that efficiency scores of privately owned banks were better than those owned by the government. It is worth noting that, the periods covered in this study are before the two (2) Nigerian banking reforms of 2005 and 2009. Thus, Obafemi suggested that based on the technical efficiency scores of the sampled banks, the banking consolidation reforms embarked upon by the CBN was not wrong. He opined that the 2005 banking consolidation reform weeded out inefficient banks from the banking system, thus ensuring that bank resources were better used by banks that are more efficient.

Likewise, Obafemi, Ayodele, & Ebong (2013) in their study employed a two-stage DEA approach to examine technical efficiency in Nigerian commercial and merchant banks. In the first stage DEA model, the study generated efficiency scores, which were regressed against a set of explanatory variables in the second stage. The results they presented were consistent

84

with those presented by Obafemi (2012) above. Even though they added that market share and liquidity ratio were positively related to bank efficiency and were statistically significant. Capital-labour ratio was found to be negatively correlated to bank efficiency, even though it was significant at 10%. More so, the quality of management, capital adequacy and ownership were found to be positively related to bank efficiency but no significant. Due to been a retrospective study of bank performance and efficiency covering periods before the banking consolidation reforms of 2005. They submitted that the Nigerian banking industry was inefficient before the banking consolidation reform of 2005 and that the 2009 banking reform that aimed to reform bank management practices and corporate governance was a step in the right direction.

Tankoano (2013) compared the efficiency and productivity of Burkina Faso and Nigerian banks around the 2008 global financial crisis. Based on a sample of thirty-three (33) banks, he used the DEA window Analysis and the Malmquist Productivity Index Approach to assess the efficiency and productivity of the banks from 2004 – 2011. A three-year period was selected for the study and the eight-year period allowed for six (6) windows. The study made use of two variable inputs (interest expenses and non-interest expenses) and two output variables (Interest income and non-interest income). Tankoano (2013) suggested that both the Burkina Faso and Nigerian banking industries were affected by the global financial crisis. Although the efficiency of the Burkina Faso Banks improved after the global financial crisis, the Nigerian banks did not witness improvements because of the banking crisis that plagued the Nigerian banking industry in 2009 and 2010. Tankoano additionally opined that foreign banks in both countries performed better than local banks. He also was of the view that based on the results of the DEA CCR and BCC models during and after the global the crisis, the average efficient scores of Nigerian banks were higher than those of Burkina Faso banks. Finally, a review of the studies in this section indicates the study by Tankoano (2013) is the only study that utilised the DEA window analysis. Moreover, the study by Tankoano is a comparative study of the Burkina Faso and Nigerian banking sectors. Apart from the lack of DEA window analysis studies, the period x-rayed in this study differs from all those reviewed by the studies in this section. More so, these Nigerian studies concentrated on ascertaining the efficiency and performance of Nigerian DMBs and recently the global financial crisis without exploring financial safety nets (bailouts and bridge banking mechanisms). Furthermore, DEA analysis was not utilised to predict banking distress in the Nigerian banking sector. On that account, DEA window analysis results are evaluated to uncover if they could be used to

85

predict banking distress. In conclusion, this study is particularly more exploratory because it utilises the DEA analysis to evaluate the performance and efficiency of DMBs in relation to the 2005 and 2009 Nigerian banking reforms, the bailout of eight DMBs, and the nationalisation of three DMBs into bridge banks.

3.14 Chapter Conclusion

This chapter discussed and reviewed various facets of literature on banking regulation and supervision, the rationale for regulation, capital regulation/recapitalisation, and banking consolidation. Policy responses and reactions to the global financial crisis were also considered. The chapter also presented literature on financial safety nets with a particular focus on bank bailouts and bridge banking mechanism because they were utilised by Nigerian regulators to prevent the collapse of distressed DMBs. The central objective of both the 2005 and 2009 Nigerian reforms was to promote financial stability, hence the review of banking and financial stability literature. To that end, studies that are related to the methodologies adopted to ascertain the determinants of efficiency, performance, and financial stability were also discussed within this chapter. Evidence showed divergent opinions on the factors that determine bank efficiency, performance, and financial stability, hence the rationale for this study. More so, arguments that show the limitations of banking literature in the areas of interest in relation to the 2005 and 2009 Nigerian banking reforms were also highlighted in the concluding paragraphs of every section of this chapter. To round-up the chapter, Nigerian banking studies were presented with particular focus on the methodologies adopted in this study. The reviewed studies indicate the adoption of mostly one or two methodologies in the evaluation of banking performance. Therefore, this study is highly robust and exploratory as it incorporates DEA window analysis, multiple regression analysis and content analysis to examine the Nigerian banking sector from 2000 – 2013.

86

Chapter Four: Research Methodology

4.1

Introduction

Any research should adopt the appropriate guidelines and procedures to be able to achieve the desired outcome. To this end, this chapter dwells on the systematic framework that this research followed in order to achieve the aims and objectives of the study.

This study examines the effects of banking reforms on the performance, efficiency, and stability of Nigerian deposit money banks. Interview responses, in addition to annual financial stability reports and annual reports from the CBN and NDIC, are used to evaluate the activities of bank managements and regulatory authorities. The performance and efficiency of Nigerian banks are gauged using the DEA window analysis technique based on selected input and output variables. While multiple regression analysis is employed to ascertain the effects of capital adequacy, asset quality, management quality, earning ability, liquidity, sensitivity to market risk, bank size and GDP on bank efficiency, bank performance, and banking stability. Thus the focus of this chapter will be on the description of the processes adopted to answer the research questions in order to achieve the aims and objectives of the study.

This chapter focuses on the research methodology and the procedures employed in conducting this study. Research methodology is the exposition of the guiding principles that comprise of the systematic data collection and interpretation of data, geared towards uncovering logical relationships that lead to valid conclusions (Ghauri & Gronhaug, 2010; Saunders, Lewis, & Thornhill, 2016). With a view to give direction to this study, this research methodology chapter is a sequential presentation of the array of choices, paradigms, data collection methods, techniques of data analysis and the entire process navigated by the researcher in order to provide answers to the research questions and realise the aims and objectives of the study.

In sum, this chapter dwells on the research framework adopted to achieve the aims and objectives of this study. The research philosophy, research approach, research strategy, methods of data collection, techniques used for data analysis and testing, the validity and

87

reliability of the study and constraints that were encountered in solving the research problems.

In order to ensure a sequential flow of the discussion of the procedures employed in conducting this research, the scope of the study is presented to lay the foundation for further deliberations. The scope of the study highlights the time frame of the study and the institutions involved.

4.2

Scope of Study

The Nigerian banking sector is regulated and supervised by the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC). The CBN and NDIC are the two main regulatory authorities in Nigeria, and they are saddled with the task of safeguarding the banking industry and ensuring the efficiency and soundness of banking institutions. The CBN and NDIC oversee the activities of commercial banks, merchant banks, micro-finance banks and mortgage banks operating in Nigeria. Nonetheless, only banks termed as Deposit Money Banks (DMBs) by the Nigerian banking regulatory authorities are examined in this study. Deposit money banks in the Nigerian banking sector include only commercial and merchant banks. Additionally, some commercial banks either acquired or merged with the merchant banks, and for that reason, all the banks that survived the banking consolidation reforms of 2005 operate under commercial banking licences. In broad terms, this study examines the impact of the activities of the CBN and NDIC on the efficiency and performance of DMBs in Nigeria. Hence, the institutions of focus are the CBN, NDIC and Nigerian Deposit Money Banks.

The efficiency, performance, and stability of Nigerian DMBs are examined over a period of fourteen years (2000 – 2013). This period is chosen by virtue of the events that transpired in the Nigerian banking industry and the world. In view of the Nigerian banking sector, the banking system went through two banking reforms that changed the landscape of the industry. The Nigerian banking sector went through the 2005 and 2009 banking reforms within a period of five years. More so, Nigerian regulators bailed-out eight DMBs in 2009, and adopted the bridge banking model to resolve three (3) distressed banks in 2011. While in

88

general, the global financial crisis that affected global economies and financial institutions started in the second half of 2007.

In conjunction with the above, the periods before the 2005 banking reforms (i.e. 2000 – 2004) are examined in order to present a robust picture of the Nigerian banking sector before the consolidation exercise that trimmed down the number of banking institutions. In like manner, the period 2010 – 2013 is included in the study to evaluate how the banks fared after the global financial crisis and the 2009 banking reforms.

4.3

Research Philosophy

One significant and initial aspect of the research process is the research philosophy. Research philosophy relates to the development of knowledge and the nature of that knowledge in relation to research (Saunders and Lewis, 2012). The philosophical position of the researcher influences the way in which the entire research process is conducted. Thus the research philosophy highlights the researcher’s perspective of the study, the variables adopted, the relationships uncovered, influencing factors, and the desired outcome. The philosophical choice of the researcher also defends the position taken in relation to the alternatives that could have been adopted.

It is important to examine the philosophical issues in research because it enables the researcher to evaluate research critically. A review of the philosophy adopted is essential to discern the fundamental and conceivable contentious, assumptions upon which research reports are established even when these are not explicit, and therefore to be able to examine the aptness of the methods that have been utilized and the validity of the conclusions reached (Walliman, 2009). Research philosophy covers the entire research and includes distinct and significant assumptions concerning the study. It expresses the philosophical stand of the researcher in relation to the nature of reality, what is acceptable knowledge and values in research. The research philosophy also dwells on the research strategy and the methods the researcher adopts. Nonetheless, before individual philosophical standpoints are presented, this study aligns with Saunders et al (2009) who opines that no research is superior in relation to the other. They hold that it is, however, crucial to select the most appropriate philosophy or

89

philosophies that will assist in providing a valid conclusion to the research aims and objectives.

According to Saunders and Lewis (2012), the main strands of research philosophy are positivism, realism, interpretivism, and pragmatism.

4.3.1 Positivism

Positivism or the positivist approach is an epistemological position that supports the application of natural scientific methods to the study of social sciences (Bryman & Bell, 2011). The positivist approach entails collecting data around an observable reality and searching for regularities and casual relationships in data to build law-like generalizations like those produced by scientists (Myers, 2013). Positivist research generally assumes that