Impact of banking sector reforms on the Nigerian capital market (Equities)

Abstract

Following the outcome of the Special Joint Examination by the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC), ten banks were indicted, out of which two were asked to recapitalize, while the Chief Executive Officers (CEOs) and Directors of the remaining eight were removed by CBN based on mismanagement and poor corporate governance. In order to protect the investors as well as prevent unprecedented dumping of the shares of the listed seven banks, two weeks of full suspension was imposed on trading of their shares on the stock market at various times. This paper attempts to determine the impact of the suspended seven banks on the banking sector shares, as well as, establish the relationship between equities total market capitalization and banking sector and nonbanking sectors capitalization. Year 2010 provided the needed recovery of the stocks market with the establishment of Asset Management Corporation of Nigeria (AMCON) which will help stimulate the recovery of the financial system and ultimately, provide liquidity to the banks by buying their non-performing loans and recapitalizing the intervened banks, among other things. The paper also recommends ways of encouraging the listing of additional companies in other sectors so as to reduce the dominance of banks in the stocks market. Using data sourced from Nigerian Stock Exchange (NSE), the study adopts descriptive statistics in analyzing the data.