Determinants of Financial Performance of Deposit Money Banks in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue V, May 2022 | ISSN 2454–6186

Determinants of Financial Performance of Deposit Money Banks in Nigeria

Okere, Peter Anele PhD¹, Uzowuru, Lawrence Ndubuisi PhD², Uzokwe, Nnamdi PhD^3
1Banking and Finance Department, Imo State Polytechnic, Umuagwo-Ohaji
²Banking and Finance Department, Federal Polytechnic Nekede, Imo State
³Banking 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.
Keywords: Assets Quality, Capital Adequacy, Financial Performance, Return on Asset.
I.INTRODUCTION
Financial sector is the economic backbone of any country. It is the wheel through which economic activities of any country rotates. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. Deposit money banks as one of the major participants in financial sector play a vital role in the economic resource allocation of countries. They do this by channeling funds from surplus economic units to deficit economic units continuously. Banks can do so, if enough income is generated to cover their operational costs incurred in the due course of the intermediation. The deposit is mobilized at a cost to the bank and this cost is often called interest. On the other hand, it is passed to the users who also

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