Determinants of Listed Deposit Money Banks’ Profitability in Nigeria

Abstract

Abstract: This study examines internal factors affecting profitability of Deposit Money Banks (DMBs) in Nigeria for the period of 2008-2016 using panel data of 14 listed banks drawn from the Nigerian Stock Exchange. Secondary data obtained from the listed Deposit Money Banks' financial statements were analyzed. The independent variables were proxied by Capital Adequacy, Credit Risk, and Inflation while profitability was proxied by Return on Assets (ROA). The study adopts correlational research design to investigate the determinants of profitability of the Deposit Money Banks. Panel data techniques (fixed and random effects model) were employed to examine the effect of internal factors on profitability of the sampled listed Deposit Money Banks. Although Hausman specification test suggested that fixed effect model is more appropriate, the study used Feasible Generalized Least Square (FGLS) to underpin the outcome of the Hausman specification. The study found that internal factors had significantly influenced the deposit money banks' profitability over the study period. The Capital Adequacy had a positive and significant relationship with bank profitability while Credit Risk had a negative and significant relationship with bank profitability during the study period. It is therefore suggested among others that the Central Bank of Nigeria (CBN) should maintain a central database called Credit Risk Management System across banks in the country, which would be generating accurate and reliable credit information on bank borrowers as a way of evaluating the repayment capabilities of the customers to be granted credit facilities.