Profitability of Deposit Money Banks: Determinants of Growth in Nigeria

Abstract

The banking industry is an engine of growth and development as determined by banks profitability. The paper analyzed the determinants of deposit money banks profitability in Nigeria between 2000 and 2022. Cross-sectional design was adopted. Data were sourced from CBN annual statistical bulletin (2021) and the National Bureau of Statistics (2022). Panel regression was adopted for data
analysis. Hausamn Specification and Lagrangian Multiplier test results informed the adoption of the random effect method. Findings revealed that liquidity ratio, asset quality and financial structure are not significant determinants of deposit money banks profitability in Nigeria while asset structure and capital adequacy are significant determinants of deposit money banks profitability in Nigeria. The paper concluded that the profitability of deposit money banks has not responded significantly to key bank-specific determinants. This indicates that the profitability of these banks could be a function of a combination of industry – specific and macro-economic factors. In view of these findings, the study recommended that the management of deposit money banks should look beyond bank specific factors like liquidity, asset quality and financial structure. The macro-economic environment and other industry specific factors should be considered while making key decisions that involve the financial performance of the banks. Also regulatory agencies such as the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation should sustain rules (fiscal policy) regarding the level of asset structure and capital adequacy ratio of deposit money banks in Nigeria as these have contributed to the profitability level of deposit money banks in Nigeria.