The Determinants of Bank’s Profitability in Nigeria (original) (raw)
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A profitable banking sector is better able to withstand negative shocks and contribute to the stability of the financial system. The importance of bank profitability can be appraised at the micro and macro levels of the economy. At the micro level, profit is determined by bank’s management decisions and policy objectives, while the macroeconomic determinants look at variables that reflect the economic and legal environment where the credit institution operates. Bank profitability, typically measured by the return on assets (ROA) and/or the return on equity (ROE), and/or net interest margin (NIM) is usually expressed as a function of internal and external determinants. These issues engaged the minds of the authors in this paper. Industry related dataset that covers a 10year period of time was used. The regression results indicate that bank-specific characteristics and macroeconomic variables explain up to 97.4% variations in bank profitability when NIM was used as a dependent variable. Summarily, profitability was found to be associated with well-capitalised banks as capital ratio has a positive significant relationship with NIM; bank size has a negative but significant relationship with NIM; Asset composition has a positive but an insignificant relationship with NIM; Liquidity has a negative and insignificant relationship with NIM; all the macroeconomic variables apart from inflation have a negative and insignificant relationship with NIM. Therefore, the study recommends that regulatory authorities should promote policies that will bring about low inflation and stable economic output growth, whereas, bank managements should concentrate more on cost and non-performing loans reduction and asset composition diversification.
Determinants of Bank Profitability in Nigeria
International Journal of Economics and Finance, 2014
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.
This study investigates the impact of bank-specific, industry-specific and macroeconomic indicators on bank profitability in Nigeria over the time period from 1998 to 2012, using random-effect model. Bank profitability is proxied by return on assets (ROA) return on equity (ROE) and net interest margin (NIM). Findings suggest the existence of positive and significant effect of capital adequacy, bank size, productivity growth and deposits on profitability. Credit risk and liquidity ratio have a negative and significant effect on bank profits. However, no evidence is found in support of the effect of industry-specific variables. Finally, as expected, inflation rate and interest rate are negatively and significantly related to bank profitability.
DETERMINANTS OF DEPOSIT MONEY BANKS' PROFITABILITY IN NIGERIA
The Nigerian banking system exhibits fluctuating profitability compared to other countries in the world. This study examines the determinants of bank profitability in Nigeria. It relates internal bank specific and macroeconomic indicators to the overall profitability of Nigerian banks based on Return on Asset as the measure of profitability. The study uses a panel of individual banks' financial statements from 2004 to 20012. According to the empirical results, Nigerian banks suffer from low quality of loans and do not monitor the repayment of the loans disbursed and more so, their assets cannot cover the amount of loan disbursed. This study also finds that macro economic variables do not have a major effect on bank profitability and inflation posed adverse effect on profitability. Most importantly, Sterling bank should react quickly to all the variables considered in this study, al nearly posed a negative influence on their profitability in that if these entire factors are properly monitored, they are likely to be better off in their performance. INTRODUCTION Banks as a financial institution has the major role of lubricating the gears facilitating the economic operations of a nation. The banking system plays a major role in moving funds from the saving units to the spending units. To mention a few, if a financial system is efficient, it should show improvements in profitability, increasing the volume of funds flowing from saver to borrowers, and provide better quality services for consumers. As financial intermediaries, banks play an important role in the operation of an economy. This is particularly true in the case of Nigeria where all other sectors have to relate with banks to carry out their operations effectively either as a debtor or creditor. Moreover, banks are the sole dealer of funds, and their stability is of great importance to the financial system. As such, an in depth understanding of determinants of their profitability is necessary and vital to the ability of an economy to resist crisis. In banking literature, the determinants of profitability are empirically well explored although the proxy of profitability varies among studies. Some employed, Return on Asset, Return on Equity, Net Interest Margin, Return on Average Asset and so on. The objective of this paper is to examine the contribution of bank-specific as well as macroeconomic factors to the variation in profitability across banks and over time in Nigeria. This paper will be structured into five sections; the next
Analysis of Critical Determinants of Commercial Banks Profitability: Evidence from Nigeria
Sumerianz Journal of Economics and Finance, 2021
This study investigated the critical determinants of commercial bank profitability in Nigeria. The objective was to develop empirical models for predicting commercial bank profitability. The study adopted a combination of ex-post facto and survey research design in data collection and analysis, while quantitative and qualitative tools were employed in data analysis. The CAMELS performance basket provided the framework that guided the investigation. Two industry drivers (bank size and market share) and one macroeconomic driver (cyclic output growth rate of the economy) were included into the CAMELS basket. The quantitative approach made use of descriptive statistics and set of econometric tools in the analysis. The result of econometric analysis identified assets quality, liquidity and earnings as the significant determinants of commercial bank profitability in Nigeria. The result of the qualitative analysis based on expert opinion equally identified asset quality, earnings and liqui...
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.
Bank Specific, Industry Specific and Macroeconomic Determinants of Bank Profitability in Nigeria
European Scientific Journal, 2014
This study investigates the impact of bank-specific, industry-specific and macroeconomic indicators on bank profitability in Nigeria over the time period from 1998 to 2012, using random-effect model. Bank profitability is proxied by return on assets (ROA) return on equity (ROE) and net interest margin (NIM). Findings suggest the existence of positive and significant effect of capital adequacy, bank size, productivity growth and deposits on profitability. Credit risk and liquidity ratio have a negative and significant effect on bank profits. However, no evidence is found in support of the effect of industry-specific variables. Finally, as expected, inflation rate and interest rate are negatively and significantly related to bank profitability.
Given the recent developments in the Nigerian banking industry, only a profitable banking sector is better able to withstand negative shocks and contribute to the stability of the financial system. This assertion compels an in depth investigation of the determinants of the profitability of deposit money banks in Nigeria. Our data set is made up of 147 bank level observations over a 10-year period from 2001 to 2010 in respect of 15 banks that satisfied the study requirements. Data were obtained from the annual reports and accounts of the sampled banks. Pooled OLS (Pooled ordinary least square) stated in a multiple regression form was used to estimate the coefficients. Major outcomes of the analysis include that increase in size (higher total assets) may not necessarily lead to higher profits due to diseconomies of scale; higher capital-assets ratio and loans and advances contribute strongly to bank profitability. Overall, the paper suggests bank size, capital and asset composition as the major endogenous determinants of bank profitability in Nigeria.