Determinants of Banks� Profitability in Nigeria: Does Relative Market Power Matter?

Abstract

Purpose-This study investigates the determinants of banks' profitability in Nigeria using a panel dataset between 2001 and 2015.The results of previous empirical studies are mixed and inconclusive in terms of factors that actually influence the level of bank performance as a result of difference in sample period, estimation techniques, and countries. Design/methodology/approach-Ordinary Least Square and Generalized Method of Moment techniques were utilized. Findings-The results show that bank specific factors such as efficiency ratio, credit risk and capital adequacy are the key determinants of banks 'profitability in the long run. In addition, only capital adequacy exhibits a significant influence. However in the short run, the market concentration and real gross domestic product significantly affect the performance level in Nigeria's commercial banks for the full sample period as well as for period after bank capitalization. Originality/value-No previous research as far as the author's knowledge, has attempted to examine how relative market power affects the level of profitability in the Nigerian commercial banks, taking into account the effect of the 2005 bank capitalization.