Diversification and Financial Survival of Selected Deposit Money Banks in Nigeria

A stable financial sector efficiently allocates resources, manage financial risks and supports productive sectors of the economy for growth and development. Despite the contribution of the financial sector to the growth of the economy, deposit money banks are faced with declining capital adequacy ratio, asset quality ratio, management capacity ratio, earnings ratio and liquidity ratio. Extant literature showed that full integration of diversification into the bank operation can ensure effective financial survival. Several studies had examined how diversification affect financial survival but a few focused on income, asset and fund as proxies of diversification. This study examined the effect of diversification on financial survival of selected deposit money banks in Nigeria.
The study adopted ex-post facto research design. The population of the study comprised all the 19 authorised deposit money banks by Central Bank of Nigeria as at December 2023. Purposive sampling technique was used to select a sample of 15 authorised deposit money banks with the relevant data extracted from audited annual reports and accounts of the sampled banks for a period of 16 years (2008-2023). Reliability of data was premised on the certification of regulatory authorities and auditors. Data were analysed using descriptive and inferential (multiple linear regression) statistics at 5% level of significance.
The result showed that diversification measures had joint significant effect on management capacity (Adj. R2 = 0.06, F (5, 234) = 28.71, p < 0.05), bank earnings (Adj. R2 = 0.03, F (5, 234) =4.17, p < 0.05 of selected deposit money banks in Nigeria.
The study concluded that diversification supports the financial survival of deposit money banks in Nigeria. The study recommended that the management of deposit money banks should strengthen the implementation of income, asset and fund diversification to drive financial survival.

Asset diversification, Asset quality, Earning ratio, Capital adequacy, Income diversification, Liquidity ratio, Management capacity Word Count: 297

1. Abbas, F., & Ali, S. (2022). Dynamics of diversification and banks’ risk-taking and stability: Empirical analysis of commercial banks. Managerial and Decision Economics, 43(4), 1–21. https://doi.org/10.1002/mde.3434 [Google Scholar] [Crossref]

2. Adegbie,F.F.,Ajibade,A.T.& Ebe,C.O.(2023).Internationalization and economic value-added in deposit money banks in selected African countries.The International Journal of Business & Management.11(4),45-57. [Google Scholar] [Crossref]

3. Adem, M. (2022). Impact of diversification on bank stability: Evidence from emerging and developing countries. Discrete Dynamics in Nature and Society, 2022. https://doi.org/10.1155/2022/7200725 [Google Scholar] [Crossref]

4. Adeniyi, F., & Igbatayo, S. (2021). Financial system reforms and economic growth in Nigeria: An empirical analysis. Journal of Economic Studies, 49(2), 345-367. https://doi.org/10.1108/JES-10- 2021-0432 [Google Scholar] [Crossref]

5. Ajao, M. G., & Kokumo-Oyakhire, G. A. (2021). Corporate diversification and financial performance of conglomerate firms in Nigeria. Journal of Business Studies and Management Review, 5(1), 91–101. https://doi.org/10.22437/jbsmr.v5i1.16665 [Google Scholar] [Crossref]

6. Al-ansari, Y. D. Y. (2014). Innovation practices as a path to business growth performance: A study of small and medium sized firms in the emerging UAC market (Southern cross University. [Google Scholar] [Crossref]

7. Anh, T. T. L. (2022). Impacts of Diversification on Operational Efficiency of Vietnam Commercial Bank. Proceedings of the International Conference on Research in Management & Technovation, 28, 55–61. https://doi.org/10.15439/2021km88 [Google Scholar] [Crossref]

8. Aroghene, K. G. (2022). effect of non-performing loans ( NPLS ), Capital Adequacy ( CA ) and Corporate Governance ( CG ) On Bank stability in Nigeria. 4(4), 180–192. https://doi.org/10.51594/farj.v4i4.400.Business, 10(1), 65-78. [Google Scholar] [Crossref]

9. Baroroh, H. (2023). Activity diversification, performance, and profitability in Islamic Banking. Jurnal Ilmiah Ekonomi Islam, 9(2), 1920. https://doi.org/10.29040/jiei.v9i2.809 [Google Scholar] [Crossref]

10. Benjakik, S., & Habba, B. (2021).Income diversification and bank performance: Does bank size matter? Empirical evidence from African banking sector'. Research Journal of Finance and Accounting [Preprint]. Available at: https://doi.org/10.7176/rjfa/12-16-03. [Google Scholar] [Crossref]

11. Chinoda, T., & Kapingura, F. M. (2023). The impact of digital financial inclusion and bank competition on bank stability in Sub-Saharan Africa. Economies, 11(1). https://doi.org/10.3390/economies11010015 [Google Scholar] [Crossref]

12. Didigu, C., Joshua, N., Okon, I. S., & Eze, A. (2022). Monetary policy and banking sector stability in Nigeria. Journal of Applied Statistics 13(1), 12-26. [Google Scholar] [Crossref]

13. Duho, K.C.T., Onumah, J.M., & Owodo, R.A. (2020). Bank diversification and performance in an emerging market. International Journal of Managerial Finance, 16(1), 120-138. Available at: https://doi.org/10.1108/IJMF04-2019-0137. [Google Scholar] [Crossref]

14. Fadli, J.A. (2019). Should banks diversify their income and credit? evidence from Indonesia banking industry. Kinerja, 23(1), 28-41. Available at: https://doi.org/10.24002/kinerja.v23i1.2124 [Google Scholar] [Crossref]

15. Fakunmoju, S. K., Jinadu, B., & Akindele, A. A. (2022). Effect of interest rate spread and bank specific factors on survival of tier-one and tier-two deposit money banks in Nigeria. Emerging Markets Journal, 12(2), 19-25. https://doi.org/10.5195/emaj.2022.264 [Google Scholar] [Crossref]

16. Freeman, R. E., Harrison, J. S., Wicks, A.C., Parmar, B.L., & Colle. S. D. (2010). Stakeholder Theory: The State of the Art. Cambridge University Press [Google Scholar] [Crossref]

17. Halim, A. (2019). The effect of diversification strategy on efficiency in manufacturing companies listed on the Indonesia Stock Exchange', Indonesian Accounting and Finance Studies, 2(2), 149-176. Available at: https://doi.org/10.21632/saki.2.2.149-176. [Google Scholar] [Crossref]

18. Igbinosa, S. O., & Ogiemudia, O. A. (n.d.). Financial regulation and bank failure in Nigeria and USA. 210. [Google Scholar] [Crossref]

19. Isik, I., & Uygur, O. (2021). Financial crises, bank efficiency and survival: theory, literature and emerging market evidence. International Review of Economics and Finance, 76, 952-987, doi: 10.1016/j.iref.2021.07.016. [Google Scholar] [Crossref]

20. Jegede, C. A., Fakunmoju, S. K., Ajuzie, O. (2024). Combined effects of capital structure and corporate governance on financial stability of deposit money banks. Ekonomicko-manazerske spektrum, 18(1), 28-40. [Google Scholar] [Crossref]

21. Manifita, A. Paminto, A., & Jamaluddin (2024). Influence of income diversification and external risk on financial performance and stock prices of banks listed on the Indonesia stock exchange. International Journal of Business and Management Investigation, 3 (11); 29-45 [Google Scholar] [Crossref]

22. Muchiri, N. W., & Omwenga, J. Q. (2023). Liquidity capacity and financial performance of commercial banks in kenya. Reviewed Journal International of Business Management, 4 (1), 165 – 185. [Google Scholar] [Crossref]

23. Muharam, H., & Bellinda, B. (2020). Income diversification, bank performance, and the moderating role of ownership type. Strategic Business Journal, 29(1), 68-79. Available at:https://doi.org/10.14710/jbs.29.1.68-79 [Google Scholar] [Crossref]

24. Ndungu, J. G., & Muturi, W. (2019). Effect of diversification on financial performance of commercial banks in Kenya. International Journal of Current Aspects, 3(V), 267-285. Available at: https://doi.org/10.35942/ijcab.v3iv.67. [Google Scholar] [Crossref]

25. Nisar, S., Peng, K., Wang, S., & Ashraf, B. N. (2018). The impact of revenue diversification on bank profitability and stability: Empirical evidence from South Asian countries. International Journal of Financial Studies, 6(40), 1–25. doi:10.3390/ijfs6020040 [Google Scholar] [Crossref]

26. Ojiegbe, J. N., Otiwu, K. C., & Aderigha, A. G. (2023). Banks diversification and return on assets of deposit money banks in Nigeria. International Journal of Advanced Academic Research, 9(9), 86-104. https://www.openjournals.ijaar.org/index.php/ijaar/article/view/186 [Google Scholar] [Crossref]

27. Olokundun, M., Hezekiah, F., Stephen, I., & Fred, I. (2014). An assessment of the taught entrepreneurship program in Nigerian secondary schools. Merit Research Journal, 2(11), 257-275. [Google Scholar] [Crossref]

28. Omeni, I. P., & George, A. A. (2021). Portfolio diversification and performance of deposit money banks: Analysing the Nigerian Banking Industry. Asian Journal of Economics, Business and Accounting, 21(15), 12–27. https://doi.org/10.9734/ajeba/2021/v21i1530475 [Google Scholar] [Crossref]

29. Owino, M. O. (2021). Diversification, firm size and competitiveness of commercial banks in Kenya. A Thesis Submitted in Partial Fulfillment of the Requirements for the Award of the Degree of Doctor of Philosophy of Business Management, Rongo University [Google Scholar] [Crossref]

30. Paltrinieri, A., Dreassi, A., Rossi, S., & Khan, A. (2021). Risk-adjusted profitability and stability of Islamic and conventional banks: Does revenue diversification matter? Global Finance Journal, 50, 22-43 doi: 10.1016/j.gfj.2020.100517 [Google Scholar] [Crossref]

31. Radojičić, J., & Marinković, S. (2023). Impact of income and assets diversification on bank performance in Serbia. Economic Themes, 61(2), 197–214. https://doi.org/10.2478/ethemes-2023-0010 [Google Scholar] [Crossref]

32. Sittichobtham, M. K. (2019). How does loan portfolio diversification affect bank profitability?, Chulalongkorn University [Preprint] [Google Scholar] [Crossref]

33. Trinugroho, I., Risfandy, T. and Ariefianto, M.D. (2018) 'Competition, diversification, and bank margins: Evidence from Indonesian Islamic rural banks', Borsa Istanbul Review, 18(4), pp. 349-358. Available at: https://doi.org/10.1016/j.bir.2018.07.006. [Google Scholar] [Crossref]

34. Uniamikogbo, E., Okoye, E. I., & Amos, A. O. (2020). Income Diversification and Financial Performance of Selected Deposit Money Banks in Nigeria. International Journal of Applied Management Sciences and Engineering, 8(1), 89–105. https://doi.org/10.4018/ijamse.20210101.oa1 [Google Scholar] [Crossref]

35. Wahyuningtias, E. and Kusumawardhani, R.(2024). The Moderating Effect of Income Diversification on Intellectual Capital and company Performance; case study of banking in Indonesia. Journal of Siasat Bisnis, 28 (1); 104-115. [Google Scholar] [Crossref]