An Assessment of the Determinants of the Nigerian Banking Industry Profitability Using Panel Evidence From Nigerian Commercial Banks

Abstract

Prominent studies abroad which focused on the determinants of bank's interest margin and profitability have focused on whether banks in a particular country or panel have tended to exhibit different profit determinants and deposit behaviours. One question that these studies have not yet addressed is the actual determinants of bank profitability in Nigeria. Using the panel of respondents drawn randomly from 10 sampled banks based on their total deposit position at the entry point of the period of study 1996-2005, the study established that in Nigeria, the volume of operations more than any other factor determined the operating profits of commercial banks. The other factors include the level of market capitalisation, peer group ranking and combination of other important factors as determined by the tempo of the macro economic environment. This finding posed serious challenge to bank executives to identify important explanatory variables or determinants affecting their annual earnings to their forecast and build them into their chosen forecasting and profit planning models to improve forecast accuracy. The study calls for more commitment to trainings and model development based on the internal peculiarities of banks under study.

The Information Manager Vol. 7 (2) 2007: pp. 14-20