Determinants of Bank Financial Performance: A Study of Nigerian Deposit Money Banks

Abstract

This paper investigates the effects of bank-specific and macroeconomic determinants on bank profitability; a panel data approach has been adopted and effectively applied to 14 Nigerian deposit money banks set for a period covering from 2012 to 2018 representing 98 firm-year observations. The study adopts panel data regression analysis Fixed Effects Model (FEM) and Random Effects Model (REM). The paper finds that bank-specific factors, such as capital efficiency, operational efficiency, credit risk, and bank size significantly determine the financial performance of Nigerian banks. Also, the gross domestic product (GDP) as a macroeconomic factor plays a significant role in determining the profitability of banks in Nigeria. The study recommends that policy should also be directed towards improving the efficiency and resilience of Nigerian banks towards withstanding economic shocks that may occur, such as a global pandemic.