Macroeconomics Indicators and Bank Profitability in Nigeria

Abstract

This study examined the effect of macroeconomic indicators on the profitability of deposit money banks in Nigeria. However, in order to achieve the objectives of this study, the study utilised five explanatory variables as proxies for macroeconomic indicators (gross domestic product, inflation rate, interest rate, crude oil price, and exchange rate) while banking sector return on assets was used as a proxy for bank profitability in Nigeria. The study covered a time period of 2000 to 2022. The Ordinary Least Squares (OLS) technique was adopted for the analysis based on the fact that the variables were stationery at levels. The Augmented Dickey Fuller (ADF) and the Elliot-Rothenberg-Stock unit root tests showed that gross domestic product, inflation rate, interest rate, crude oil price, and exchange rate and bank profitability were stationery at levels based on the fact that ADF statistics > ADF at 5%. The regression results revealed that there is a positive and significant relationship gross domestic product and bank profitability, inflation rate has an insignificant effect on bank profitability, interest rate has an insignificant effect on bank profitability, crude oil price was found to have a positive
and significant effect on bank profitability while exchange rate was found to have a negative and insignificant effect on bank profitability. Based on these findings, it was recommended that government through their fiscal and monetary policy tools should ensure that rise in crude oil prices as macroeconomic indicator could utilized effectively to developed the banking sector in Nigeria. It was also suggested that monetary authority should ensure that increase in real gross domestic product coupled with cash reserve requirement would help banks to better position to give more credit facilities to the public and in turn enhance the overall development of the banking sector.