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Impact of financial development on bank profitability

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  • Ozili, Peterson K
  • Ndah, Honour

Abstract

In this paper, we examine whether financial development is an important determinant of bank profitability. Using the robust ordinary least square and the generalized method of moments regression methodology, we find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, we observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.

Suggested Citation

  • Ozili, Peterson K & Ndah, Honour, 2022. "Impact of financial development on bank profitability," MPRA Paper 111337, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111337
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank profitability; financial development; banks; return on assets; return on equity; Nigeria; financial system; bank concentration; economic growth; size of financial system; domestic credit to private sector;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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