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The banking system is critical to the growth and development of every economy. In reality, the health of a country’s financial system impacts the health of its economy (Osaze 2000).

Over the previous two decades, the banking sector in Nigeria has undergone a number of substantial transformations as a result of financial sector restructuring and liberalisation, as well as technical advancements.

Prior to 1987, the Nigerian monetary authorities limited branch expansion and established deposit and lending rates. Because of this institutional framework, there is essentially little competition in the sector, with more of the activity concentrated in the four largest banks.

Many structural changes were noted in the sector during the 1990s. The Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) took over administration and control of several banks.

The mandatory capital level was raised to N500,000.00, however the statutory minimum risk-weighted capital ratio remained at 8% on average, resulting in a 22% decrease in the number of banks in Nigeria between 1997 and 1999 (Asogwa, 2004).

The implementation of universal banking in Nigeria necessitated the CBN strengthening the regulatory and supervisory structure. In 2002, the capital base requirement was raised to N2 billion, and the risk-weighted capital ratio was increased to 10%.

The CBN unveiled a new 13-point reform plan in 2004, with the goal of promoting the soundness, stability, and efficiency of the Nigerian banking industry, as well as increasing its competitiveness in the African regional and global financial systems.

One of the 13-point agenda items was to raise the minimum capital base to N25 billion about 18 months (December 2005) following the announcement, while keeping the statutory minimum risk-weighted capital ratio at 10%.

This necessitated the closure of certain banks, while others engaged in mergers and acquisitions, and the remaining banks turned to the capital market to obtain additional capital.

When the new reform was announced, around 5-10 banks’ capital bases were already N25 billion; 11-30 institutions’ capital bases were between N10 and N20 billion; and the other 50-60 banks’ capital bases were well below N10 billion (Zhao and Murinde, 2009).

In order to fulfil the necessary capital base, the industry underwent merger and acquisition. Furthermore, banks raised capital through both domestic and foreign direct investment.

As a result, the industry’s capitalisation as a proportion of stock market capitalization and market liquidity increased during the 2005-2006 fiscal year.

At the end of the 18-month period, just 25 out of 89 banks remained in operation, with 21 private publicly traded banks, four foreign banks, and no government-owned bank.

Since their inception, banking reforms have been influenced by the need for a more sound banking industry, globalisation of operations, technological innovation, and the adoption of supervisory and prudential requirements that conform to international standards, as well as the need to make Nigerian banks Basel Accord I and II compliant.

Reforms in the Nigerian banking sector were required due to factors such as the banks’ low capital base, poor corporate governance, massive insider abuse, sharp practises, reliance on public sector deposits, insolvency, and internally focused rivalry.

The reform altered the size, structure, and operational aspects of Nigeria’s banking sector (Ibid). In Nigeria, 24 larger and better-capitalized banks are now in existence.

The responsibilities and performances of the Nigerian capital market in channelling investment possibilities before and after consolidation cannot be overlooked.

The question that has yet to be scientifically solved is when the Nigerian stock market performed best. The purpose of this research is to evaluate the performance of the Nigerian capital market before and after consolidation.


Consolidation (merger and acquisition) was used by banks as an alternate method of recapitalization. The most recent reform required all commercial banks (deposit-taking institutions) to increase their capital base from N2 billion to N25 billion by December 31, 2005, which prompted some banks to explore consolidation (merger and acquisition) as the best option.

According to the Nigerian Stock Fact Book, there was no improvement in the all-share index, volume, share values traded, and banking sector capitalization before to consolidation compared to the consolidation period and thereafter. Is this improvement the result of the 2005 consolidation exercise? What was the one element that caused this remarkable improvement?

What impact did banking sector consolidation have on stock market performance in terms of enhancing stock market performance indices? What was the trend of the all-share index before and after the banking industry was consolidated?

To what extent has the 2005 stock market consolidation exercise impacted stock trading activities? Looking at the NSE Fact Books before, during, and after consolidation, was the banking sector consolidation beneficial or detrimental to the Nigerian capital market?

Although the consolidation programme appeared appealing at first, analysts have suggested that it is policy-driven rather than market-driven, and hence may have difficulty in achieving the intended goals.

According to Somoye (2008), most developing or emerging economies have adopted government-promoted bank consolidation rather than market mechanisms, and the time lag of the bank consolidation varies from nation to nation.

As a result, there is a high degree of suspicion among opponents that the consolidation policy lacks critical consideration of the realities on the ground, and that the authorities may have adopted it to disempower them.

Despite its noble intentions, the level of debate surrounding the consolidation project has been a major source of concern since the CBN announced it in July 2004.

According to Akpan (2009), maximising returns and optimising profitability became the challenge for banks immediately following the consolidation exercise, where banks were required to significantly increase their level of returns while also managing costs.

In order to achieve this, banks will have to offer innovative products and services to the marketplace, including new ways of delivering them. However, as with the country’s overall economic changes, the majority of the objections focused on the structure and implementation mechanism, rather than the acceptability of the exercise (Ezeoha 2005).

As a result of the foregoing, this study seeks to examine the performances of the Nigerian capital market before and after the 2004 consolidation exercise, in order to determine whether the consolidation of banks resulted in a significant improvement in the capital market’s performance when compared to the market’s performance prior to consolidation.


Many experts have been interested in evaluating the performance of the Nigerian capital market before and after consolidation in recent years. Several studies on the evaluation of capital market performance appear to have failed to fully address all of the primary problems of concern in this field.

For example, Abdulrahaman (2013) assessed the performance of the Nigerian capital market before and after the banking sector consolidation process between 2001 and 2010.The study looked at the considerable difference in the mean of capital market performance before and after consolidation.

However, the study failed to assess the difference in the amount of local investment as well as the All-share index on the exchange before and after consolidation, which is where the study’s originality lies.

According to the best of the researcher’s knowledge and the available literature, no study has been conducted that compares capital market performance before and after consolidation,

with a focus on the degree of local investment. This is the impetus for the study, as well as the gap that the researcher hopes to fill.


The overall goal of this study is to compare how badly or well the capital market performed before to bank consolidation in 2005 to post-consolidation performance.

The precise goals are as follows:

(i.) Compare the value and volume of market transactions before and after the consolidation of banks.

(ii.) Compare the All-Share index of the stock exchange before and after bank consolidation.

(iii.) Determine the market level of local investments before and after bank consolidation.


(i.) To what extent has bank consolidation increased the value and volume of capital market transactions in contrast to the value and volume of transactions before to consolidation?

(ii.) Have the stock exchange’s All-Share indexes improved significantly after consolidation compared to before consolidation?

(iii.) Is there a considerable increase in the level of local investments in the capital market following consolidation compared to the level of local investments prior to consolidation?


The following are the study’s hypotheses:

Ho1: There is no substantial association between the value and volume of capital market transactions before and after bank consolidation.

Ho2: Bank consolidation in Nigeria has no substantial link with the Nigerian Stock Exchange’s All-Share index before and after consolidation.

Ho3: There is no discernible difference in the level of local investment before and after bank consolidation.


The analysis takes into account capital market performance metrics from 2003 to 2008.The study evaluates the performance of the Nigerian capital market during a five-year period separated into two distinct periods: pre-consolidation (2003-2005) and post-consolidation (2006-2008).

The following performance indicators were evaluated: the value of market transactions, the volume of stock traded, and the All-share index; as well as primary data on the amount of local investments on the exchange.



A bank, according to the dictionary, is an institution that keeps, lends, and exchanges money, among other things. In general, a bank is an institution that accepts deposits from consumers and then lends to them.

The main distinction between banks and other deposit-taking financial institutions is that banks may create credit while other institutions cannot.

The Capital Market

The capital market is a financial market segment that supports the mobilisation and allocation of medium and long-term money through the issuance and trading of financial instruments.

Stocks and corporate shares are examples of securities, as are commercial and industrial loan stocks and debentures, state government bonds and stocks, and federal government development stock bonds.


Consolidation is defined as a decrease in the number of banks and other institutions that accept deposits while increasing the size and concentration of consolidated firms in the industry.

Acquisitions and fusions

A merger is the consolidation of two or more businesses into a single entity. Acquisition, on the other hand, occurs when one firm acquires a controlling shareholding position in another.


The research will be organised into five chapters. The first chapter introduces the study and provides an overview of the research work.The second chapter examines the existing literature on the Nigerian banking sector,

its development and transitions at various points in time leading up to the CBN’s announcement of a new minimum capital requirement for banks in 2004,

resulting in consolidation; as well as the history and evolution of the Nigerian capital market, conceptual framework, and theoretical framework.

The third chapter looks at the methods used for this study in terms of data collection and tools. The fourth chapter discusses data analysis and findings interpretation. The fifth chapter discusses the study’s summary, conclusion, and suggestions.

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