Determinants of Bank Profitability: Panel Evidence on Bank-Specific Variables in Nigeria

Author(s)

Kolade Sunday , Ajibola Olurotimi ,

Download Full PDF Pages: 29-36 | Views: 429 | Downloads: 128 | DOI: 10.5281/zenodo.3404590

Volume 2 - February 2013 (02)

Abstract

This study investigated the impact of bank-specific variables on bank profitability in the Nigerian banking industry. In investigating the impact, a regression is used. Using an unbalanced panel data set comprising 65 observations of 15 banks over the 2006-2010 period, the regression results confirm and differ from some previous findings. The results reveal that bank capital adequacy, bank credit portfolio size, and bank credit risk are significant determinants of bank profitability in Nigeria. It also reveals that bank size, customers’ deposit, and management efficiency (measured by operating expenses/total asset ratio) are insignificant determinants of bank profitability in Nigeria. These results imply that Nigerian banks should focus more on increasing their equity-total asset ratio and credit risk management due to its impact on profitability. Therefore, the research provided evidence that supports the Central Bank of Nigeria’s policy of bank recapitalisation and credit management aimed at ensuring profitability and liquidity in the Nigerian banking sector. 

Keywords

Nigerian banks, bank-specific variables, profitability, determinants, panel data

References

                      i.            Abreu, M. & Mendes,V. (2002). Commercial Bank Interest Margins and Profitability: Evidence for E.U countries. Porto Working Paper Series. www.iefs.org.uk/Papers/Abreu.pdf.

       ii.            Athanasoglou, P., Delis, M., & Staikouras, C. (2006). Determinants of Banking Profitability in the South Eastern European Region. Bank of Greece Working Paper 06/47.

     iii.            Berger, A. (1995). The Relationship between Capital and Earnings in Banking. Journal of Money, Credit and Banking, Vol. 27, No. 2, 432-456.

     iv.            Fadzlan, S. (2011). Profitability of the Korean Banking Sector: Panel Evidence on Bank-Specific and Macroeconomic Determinants. Journal of Economics and Management, Vol. 7, No. 1, 43-72.

       v.            Faisal, A. (2005). The Profitability of Islamic and Conventional Banking in the GCC Countries: A Comparative Study. http://www.failaka.com/downloads/Profitability_Isl amic_Banking.pdf

     vi.            Hassan, M., & Bashir, A. (2003). Determinants of Islamic Banking Profitability. www.erf.org.eg/cms/getFile.Php?id=636

    vii.            Imad, Z., Qais, A. & Thair, A. (2011). Determinants of Bank Profitability: Evidence from Jordan. International Journal of Academic Research, Vol. 3 No. 4.

  viii.            John, R., Daniel, M. & Mathew, W. (2005). Bank Capital, Performance and Regulation: Some International Evidence. Investment Management and Financial Innovations.

      ix.            Mathuva, D.M. (2009). Capital Adequacy, Cost Income Ratio and the Performance of Commercial Banks: The Kenyan Scenario. International Journal of Applied Economics and Finance, 4 (2), 35-47.

       x.            Molyneux, P. & Thornton (1992). Determinants of European Bank Profitability: A Note. Journal of Banking and Finance, 16, 1173-1178.

      xi.            Naceur, S.B. (2003). The Determinants of the Tunisian Banking Industry Profitability: Panel Evidence. Universite Libre de Tunis Working Papers. www.erf.org.eg/CMS/getFile.php?id=607

    xii.            Sanni, M. (2009). Short Term Effect of the 2006 Consolidation on Profitability of Nigerian Banks. Institute of Chartered Accountants of Nigeria, Vol. 1, No.1, 107-119.

  xiii.            Uhomoibhi, T.A (2008). Determinants of Bank Profitability: Company-Level Evidence from Nigeria. http://ssrn.com/abstract=1106825

  xiv.            Vong, L.K. (2005). Loans and Profitability of Banks in Macao. AMCM Quarterly Bulletin, Issue No. 15,. 91-107.

Cite this Article: