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Determinants of Bank Profitability in Nigeria

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  • Osuagwu, Eze

Abstract

There are increasing scholarly debates on the direction of policy to effectively improve the performance of banks. Some scholars argue that bank performance is enhanced by improvements in the internal organization and managerial efficiency, others argue that industry wide factors are integral to bank performance. In recent times, the direction of literature has shown that macroeconomic factors play a significant role in determining bank profitability. This paper investigates the determinants of bank profitability in the light of bank specific variables, industry related factors and macroeconomic influences, using a panel of selected banks that account for over 60% of total bank assets in Nigeria. Findings show that bank profitability is largely determined by credit risk and other factors that relate to the internal organization of banking firms. Market concentration is significant as a determinant of bank profitability. There is no evidence of structure-conduct-performance hypothesis, however empirical results show that there is no collusive behavior amongst banks. Exchange rate is significant as a determinant of bank profitability through return on equity and non-interest margin, but not significant to return on asset as a measure of profitability.

Suggested Citation

  • Osuagwu, Eze, 2014. "Determinants of Bank Profitability in Nigeria," MPRA Paper 60948, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:60948
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    Cited by:

    1. Eze Simpson Osuagwu & Wakeel Atanda Isola & Isaac Chii Nwaogwugwu, 2018. "Measuring Technical Efficiency and Productivity Change in the Nigerian Banking Sector: A Comparison of Non‐parametric and Parametric Techniques," African Development Review, African Development Bank, vol. 30(4), pages 490-501, December.
    2. Ibrahim Abidemi Odusanya & Olumuyiwa Ganiyu Yinusa & Bamidele M. Ilo, 2018. "Determinants of Firm Profitability in Nigeria: Evidence from Dynamic Panel Models," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 43-58, January-M.
    3. Sanni Mubaraq & Salami Abdulai Agbaje & Uthman Ahmad Bukola, 2020. "Determinants of Bank Performance in Nigeria: Do they Behave Differently with Risk-Adjusted Returns?," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 1-34, September.
    4. Nawal Hussein Abbas Elhussein & Osama Eltayeb Elfaki Osman, 2019. "Exchange Rate fluctuations and Financial Performance of Banks: Evidence from Sudan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(12), pages 1-15, December.
    5. Osuagwu, Eze Simpson & Nwokoma, Ndubisi, 2017. "Empirical assessment of the competitive conduct of Nigerian banks in a post-consolidation era," Research in International Business and Finance, Elsevier, vol. 41(C), pages 412-422.

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    More about this item

    Keywords

    bank profitability; concentration; market structure; panel data;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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