Concentration and Competition in Nigerian Banking Industry : A Review

A competitive market is considered an ideal form of market while the concept of monopolistic competition is more realistic than perfect competition and pure monopoly. The study reviewed the extent of competitive condition of Nigerian banking sector for the period of 1986-2012. This period corresponds to a period characterized by substantial reform to restructure and consolidate the banking sector into a market-driven based economy, and to further liberalize and deregulate sufficiently the systems in order to integrate economically with the international financial market. With the adoption of concentration approach (Concentration ratio and Herfindahl-Herschman index - HHI), we discovered that the competitive behaviour of banks is not only related to the number of banks in a market or to their concentration but also related to other factors at work. Hence, the industry is heading towards monopolistic competitive condition. In our opinion, the more efficiency gains of bank competition could be realized if there is an even distribution of market share in the banking industry as opposed to the present situation where majorly three banks dominate and take the larger market share in the industry. This will help to improve the efficiency required to create a fully functional credit system as well as strengthen the effectiveness of monetary policy