INTRODUCTION

1.1 Background of the Study

The rising importance of the financial sector in the economic development of countries especially developing countries, as well as the rapid rate of innovation in the sector has generated growing research interest in financial policy changes. The Nigerian financial system is one of the largest and most diversified in Sub-Saharan Africa (Afangideh, 2010). The system became liberalized when the structural adjustment programme was introduced in 1986. In recent years, the system had undergone significant changes in terms of the policy environment, number of institutions, ownership structure, depth and breadth of markets, as well as in the regulatory framework.

The financial reforms which began in 2004 with the consolidation programme were necessitated by the need to strengthen the banks and financial sector in general. The policy thrust at inception, was to grow the banks and position them to play pivotal roles in driving development across the sectors of the economy. As a result, banks were consolidated through mergers and acquisitions, raising the capital base from N2 billion to a minimum of N25 billion, which reduced the number of banks from 89 to 25 in 2005, and later to 24. However, this led to the expanded use of branches by existing and new banks. The expansion of branch banking in Nigeria has occurred with the development of new technologies to deliver financial services, such as Automated Teller Machines (ATMs) and other stored value cards. These cost effective innovations and products that have become available, have the purpose of reducing the pressure on over-the-counter services to bank customers.

It is important to note that the recapitalisation and merging of some banks affected dealings in the stock market as banks raised their required minimum capital through the capital market by issuing new securities.