Determinants of Financial Performance of Deposit Money Banks in Nigeria

Peter Anele PhD Okere, Lawrence Ndubuisi PhD Uzowuru and Nnamdi PhD Uzokwe
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Peter Anele PhD Okere: Banking and Finance Department, Imo State Polytechnic, Umuagwo-Ohaji
Lawrence Ndubuisi PhD Uzowuru: Banking and Finance Department, Federal Polytechnic Nekede, Imo State
Nnamdi PhD Uzokwe: Banking and Finance Department, Imo State Polytechnic, Umuagwo-Ohaji

International Journal of Research and Innovation in Social Science, 2022, vol. 6, issue 5, 537-544

Abstract: This study examined the determinants of financial performance of deposit money banks in Nigeria using time series annual data spanning from 1999-2020. The study used secondary data sourced from the Central Bank of Nigeria (CBN) statistical bulletin and World Bank Global Financial Development Data. Return On Assets (ROA) was used as a proxy for bank performance while some bank specific variables like Management Efficiency (MEF), Capital Adequacy (CAD) and Asset Quality(ASQ) and macroeconomic variable; Inflation(INF) were considered as the determinants. The data were analyzed using the Autoregressive Distributed Lag (ARDL). The stationarity test and cointegration test revealed that all the series were stationary at I(1) and adequately cointegrated respectively. The study revealed a positive and significant relationship between bank performance and the determinants considered in the model. The study also found that MEF, INF, CAD exerted significant negative relationship while ASQ displayed a significant positive relationship with bank performance in Nigeria. The study therefore recommends that banks should give due attention to their operational cost efficiency and leverage ratio, because too much expenses in relation with revenue and engaging in debts beyond their capacity will continue to have significant negative effect on their financial performance. Again, the Central Bank of Nigeria should review the regulatory capital review since the impact of capital adequacy on bank performance also depends on the quality of capital. The CBN should pressure the banks to increase the quality of capital they keep and reduce their holdings of hybrid capital structure since hybrid capital is of low quality.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:bcp:journl:v:6:y:2022:i:5:p:537-544

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