Determinants of Commercial Banks’ Profitability in Nigeria: A Panel Data Approach

Abstract

This study investigated the determinants of commercial banks’ profitability in Nigeria using annual panel data from 2010 to 2022. The annual data for the study were collected from the selected commercial banks’ websites and the World Development Indicators (WDI). The study used the growth rate of commercial banks’ net profit after tax as the dependent variable and
inflation rate, dividend pay-out growth rate, total assets growth rate, exchange rate, and lending rate as the independent variables. The study estimated the specified model using the panel-pooled OLS, fixed effect, and random effect models. The random effect model was more appropriate based on the Hausman test result. The empirical findings revealed that the dividend pay-out growth rate positively and significantly impacted commercial banks' profitability. Also, the total assets growth rate had a positive and significant impact on commercial banks' profitability. Based on the findings, the study recommends that commercial banks should continue to pay dividends to shareholders and invest in more assets to enhance commercial banks’ profitability in Nigeria.