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Determinants of Financial Performance of Deposit Money Banks in Nigeria

Author

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  • Okere, Peter Anele PhD

    (Banking and Finance Department, Imo State Polytechnic, Umuagwo-Ohaji)

  • Uzowuru, Lawrence Ndubuisi PhD

    (Banking and Finance Department, Federal Polytechnic Nekede, Imo State)

  • Uzokwe, Nnamdi PhD

    (Banking and Finance Department, Imo State Polytechnic, Umuagwo-Ohaji)

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.

Suggested Citation

  • Okere, Peter Anele PhD & Uzowuru, Lawrence Ndubuisi PhD & Uzokwe, Nnamdi PhD, 2022. "Determinants of Financial Performance of Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(5), pages 537-544, May.
    • Handle: RePEc:bcp:journl:v:6:y:2022:i:5:p:537-544
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    References listed on IDEAS

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    3. Caruntu, Genu Alexandru & Romanescu, Marcel Laurentiu, 2008. "The Assessment of Banking Performances- Indicators of Performance in Bank Area," MPRA Paper 11600, University Library of Munich, Germany.
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