BANK SPECIFIC AND MACRO-ECONOMIC DETERMINANTS OF NIGERIA’S BANKS PROFITABILITY
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BANK SPECIFIC AND MACRO-ECONOMIC DETERMINANTS OF NIGERIA’S BANKS PROFITABILITY
Chapter one
INTRODUCTION
Background of the study.
There is no doubt that banks turn deposits into productive investments to promote economic progress in any country (Levine et al., 2000; Tabash & Dhankar, 2014; Tabash, 2018).
A dependable and effective banking system must meet three objectives: make a significant profit, provide high-quality service to clients, and have enough funds to lend to borrowers.
The growth of any economy is heavily reliant on its banking industry. As a result, the influence of bank profitability in the economy may be measured at both the micro and macro levels. At the micro level, profit is a determining factor for any competitive financial firm.
Every bank strives to earn and achieve good profits in order to remain in business, especially in today’s more competitive financial markets. At the macro level, a prosperous banking industry should be able to absorb external negative shocks while also maintaining financial stability.
The examination of the profitability of the banking sector is quite popular in industrialised economies. However, in emerging economies such as India, there are few studies that focus on the profitability of commercial banks.
In this environment, policymakers and finance researchers would be particularly interested in the profitability of Indian commercial banks. This means that understanding the factors of bank profitability is key to economic stability because the banking sector’s well-being is very important to the welfare of the economy as a whole.
Following the crisis in Nigeria’s banking industry, the Central Bank’s monetary authorities had to implement new measures to remedy the inconsistencies. In his statement on July 6, 2004, the Central Bank Governor, Professor Charles Soludo, stated that “the Nigerian financial sector today is frail and marginal.
Our objective is for a financial system that is robust, competitive, and dependable while adapting to global changes. Depositors and investors may trust the banking system. Developing such a banking system is the common responsibility of all agents in the Nigerian economy.
He cited prolonged illiquidity, poor corporate governance, low asset quality, insider abuses, a weak capital foundation, unprofitable operations, and an over-reliance on public sector funds as causes for banking sector reform.
Mergers and acquisitions helped to consolidate the banking sector. All commercial banks were therefore compelled to recapitalize to the sum of 25 billion naira.
Ani, Ugwunta, Ezeudu, and Ugwanyi (2012) define deposit money banks as financial entities whose profits are influenced by a variety of endogenous and exogenous factors. As a result, the factors influencing deposit money bank profitability are divided into two categories: internal and external.
Internal determinants are bank-specific and include capital adequacy (capitalization), earning strength, liquidity, and managerial efficiency. Bank-specific issues are mostly under management’s control. External factors, on the other hand, are exogenous and consist of macroeconomic variables such as interest rates, inflation, GDP, exchange rates, and monetary policy rates.
Banks strive to maximise profit in order to increase shareholder wealth and meet industry-wide obligations. Profitability in the banking industry is critical because its safety is inextricably tied to the safety of the entire economy.
According to Sharma and Mani (2012), banks’ performance has become a source of concern for policymakers and economic planners because the gains of the realistic sector of the economy are dependent on the efficiency with which banks perform the function of financial intermediation.
Statement of the Problem
Banks strive to maximise profit in order to increase shareholder wealth and meet industry-wide obligations. Profitability in the banking industry is critical because its safety is inextricably tied to the safety of the entire economy.
According to Sharma and Mani (2012), banks’ performance has become a source of concern for policymakers and economic planners because the gains of the realistic sector of the economy are dependent on the efficiency with which banks perform the function of financial intermediation.
OBJECTIVE OF THE STUDY
The study’s objectives are:
To examine the influence of liquidity on mega banks’ profitability.
To determine the influence of credit risk on megabanks’ profitability.
To determine the relationship between macroeconomics and bank profitability.
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