Competition in the banking industry: Implication on financial sector development

Abstract

The objective of this work is to examine the consequence or implication of competition in the banking industry for financial sector development. Whereas, competition is good for individual banks, the customers, and the banking system, excessive competition has implications which should be carefully identified and accorded the necessary regulatory attention. To examine the consequence or implication for financial sector development, a blend of exploratory, investigatory and descriptive technique was used. These methods were employed in order to capture the competition in the banking industry in Nigeria and its effects on financial sector development. Some of the implications identified to have direct bearing on the system?s stability are related to supervision, risk management, corporate governance, market discipline, and self-regulation. Notwithstanding the enormous challenges posed by the keen competition in the industry as a result of consolidation, there is no doubt that the regulatory authority have been proactive and put in place policies to guarantee safety and soundness of the banking industry. The study concluded that the reforms introduced in the banking sector in the late 80's, raised the degree of competition and improved the level of efficiency of the Nigerian commercial banks.