Bank Consolidation and Economic Performance in Nigeria's Economy
Abstract
This study investigates the impact of banking consolidation on the performance of Nigeria’s economy over the period 2000–2025. Specifically, it examines the effects of key consolidation indicators which include Number of Bank Branches (NBB), Bank Capital (BCAP), Total Assets of Banks (TAB), Total Credits (TCR), and Total Deposits (TDP), on Real Gross Domestic Product (RGDP), which serves as a proxy for economic performance. The study is motivated by the persistent disconnect between the rapid expansion of the Nigerian banking sector following major reforms, including the 2004 consolidation under Prof. Chukwuma Soludo and the recent recapitalization initiative led by Olayemi Cardoso, and the growth of the real sector. The theoretical underpinning of the study is provided by the Supply-Leading Hypothesis and the McKinnon-Shaw Financial Deepening Theory, both of which suggest that a well-capitalized and deepened banking system promotes economic growth. A log-linear econometric model was specified and estimated using the Ordinary Least Square (OLS) approach. The findings reveal that Total Deposits exert a strong and statistically significant positive effect on economic growth, while Total Assets also contribute positively, though at a weaker level of significance. In contrast, Total Credits exhibit a negative and statistically significant relationship with GDP, indicating inefficiencies in fund utilization within the Nigerian banking and economic system. Furthermore, Bank Capital and Number of Bank Branches were found to have positive but statistically non-significant effects on economic performance. The study recommends a strategic shift in policy focus from mere expansion of financial aggregates to improving the quality and efficiency of credit allocation, strengthening asset utilization, and promoting digital financial infrastructure among others.