Deposit money banks’ efficiency in three years after, during and before the 2004–2005 consolidation in Nigeria: the puzzle on size

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In this paper, the authors examined the efficiency of deposit money banks (DMBs) in Nigeria in three years after, during and before the 2004–2005 capital consolidation in Nigeria. This consolidation period was the last period the Central Bank of Nigeria implemented an official recapitalization policy of the deposit money banks in the country. The authors predicated the study on a modified intermediation and efficiency measurement frameworks. It utilizes deposits, fixed assets and employees as inputs, whose costs are interest payments, depreciation and staff expenses. Performing loans and advances, investments and liquid assets constituted the output variables. The authors computed the efficiency scores, using the Data Envelopment Analysis (DEA) approach. The data used were obtained from the DMBs that retained their identities and controlled over 75% of the banking industry’s total assets. They were purposively selected to maintain data consistency, and were size-classified by total assets. The findings show that small banks tend to be more cost efficient than medium and big banks. More so, medium sized banks tend to be more cost efficient than big banks, while big banks take the lead in cost efficiency score in post consolidation period. Cost efficiency of the banks was the highest during consolidation, followed by pre-consolidation and least in three years after consolidation.

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    • Table 1. Measured mean efficiency of the deposit money banks in 2001
    • Table 2. Measured mean efficiency of the deposit money banks in 2002
    • Table 3. Measured mean efficiency of the deposit money banks in 2003
    • Table 4. A 3-year measured average efficiency of the deposit money banks in 2001‒2003 pre-consolidation period
    • Table 5. Measured mean efficiency of the deposit money banks in 2004
    • Table 6. Measured mean efficiency of the deposit money banks in 2005
    • Table 7. A 2-year measured mean efficiency of the deposit money banks in 2004–2005 consolidation period
    • Table 8. Measured mean efficiency of the deposit money banks in 2006
    • Table 9. Measured mean efficiency of the deposit money banks in 2007
    • Table 10. Measured mean efficiency of the deposit money banks in 2008
    • Table 11. 3-year measured mean efficiency of the deposit money banks (2006‒2008)