Banking Industry Operations in Nigeria: Monetary Reforms and Financial Performance (1990-2016)
SOURCE:
Faculty: Management Sciences
Department: Banking And Finance
CONTRIBUTORS:
Ukinamemen, A. A.
Ibenta, E. N.
Okonkwo, V. I.
ABSTRACT:
This study was motivated by the inconclusive findings from empirical studies on the nexus between banking sector reform and performance of banks. The main objective of the study is to ascertain the banking industry operations in the light of monetary reforms and their impact on financial performance, and to specifically ascertain the impact of bank capitalization, liquidity ratio, spread of interest rate and exchange rate on return on assets, return on equity and yield on earning assets of the Nigerian banking industry. Data were collected from the Central Bank of Nigeria (BN) banking supervision and Nigeria Deposit Insurance Corporation (NDIC) annual reports from 1999 to 2015. The regression models were estimated using Ordinary Least Square (OLS) technique. The time series data were checked for stationarity through unit root and diagnosed of serial correlation, heteroskedasticity, Ramsey reset stability and multi-collinearity. The data were analysed using econometric tools of Auto-Regressive Distributive (ARDL) lag model, ARDL error correction model and granger causality analysis amongst others. The findings revealed that bank capitalization, liquidity ratio and cash reserve ratio have positive relationship with return on assets, return on equity and profit before tax but a negative relationship with yield on earning assets and net interest income. The granger causality analysis depicted that back capitalization has significant effect on return on assets, return on equity and profit before tax. In view of these findings, the ratio of non-performing loans to total credit should be reduced to effectively and efficiently aid growth in return on assets and return on equity of the banking industry in Nigeria. Central Bank of Nigeria should continue to enjoy more autonomy so that the full effect of the reform strategies policy will manifest for the benefit of better banking performance in the banking industry.