Determinants of Profitability in Nigerian Listed Deposit Money Banks
Keywords:
Bank-specific, Determinants, Macroeconomic, Nigeria, Profitability.Abstract
The study examines the determinants of
profitability of ten deposit money banks in
Nigeria over the period 2007-2016. Five potential
bank-specific factors (non-performing loan,
capital adequacy, size, deposit growth and age)
and three macroeconomic factors (real interest
rate, growth in GDP and inflation rate) were
considered. Using Random Effects Generalized
Least Squares estimation technique, the findings
suggest that banks’ profitability is only affected
by bank-specific factors while macroeconomic
variables seem to have no influence. Consistent
with theoretical expectation, results show a
negative and statistically significant relationship
between non-performing loan ratio and bank
profitability as well as a direct relationship
between profitability and capital adequacy ratio.
The three macroeconomic variables have
insignificant relationship with bank profitability.
It is recommended that bank management
consider non-performing loan and capital
adequacy as relevant factors when issues relating to prescription of policy on profitability of banks are discussed and formulated.
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