What is it about?
All over the world, there have been waves of consolidation within banking markets. Ideally and ultimately, consolidation within banking markets is expected to result in social welfare transfers to bank borrowers and depositors. In this study, in spite of an increase in the importance of depositors' funds for banks' loan portfolio growth within the Nigerian banking market during the post consolidation period, we do not find any evidence of social welfare transfers to banks' deposit customers.
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Why is it important?
In the presence of efficiency gains and gains from economies of scale, consolidation is expected to result in social welfare transfers to bank depositors that are not detrimental to bank shareholders' welfare. In this study, we find evidence of efficiency gains and improvements in the structure of competition within the Nigerian banking sector, indicating efficiency or economies of scale gains have been achieved post consolidation. Our finding that consolidation has been accompanied by wealth transfers from depositors to banks provides motivation for Central Bankers to device policy tools that induce banks to pass on some of the benefits of consolidation to customers or depositors.
Perspectives
We utilize two different but complementary approaches to demonstrate that consolidation can induce wealth transfers from depositors to banks during periods within which the achievement of the objectives of consolidation are more reliant on depositors' funds. Given we find banks do not have to acknowledge their reliance on depositors' funds because the Central Bank is engaged in public provision of liquidity to the banking system, our findings imply policy tools devised by Central Bankers can be effective for altering bank behaviors in so far as the social welfare objectives of consolidation are concerned.
Dr Oghenovo A Obrimah
Fisk University
Read the Original
This page is a summary of: CONSOLIDATION WITHIN THE BANKING SECTOR AND SAVINGS DEPOSITS: EFFECTS ON LIQUIDITY, OUTPUT, AND PROFITABILITY WITHIN THE NIGERIAN ECONOMY, Annals of Financial Economics, June 2015, World Scientific Pub Co Pte Lt,
DOI: 10.1142/s2010495215500013.
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