Determinants of Bank Profitability in Nigeria

International Journal of Economics and Finance, Vol. 6, No. 12, 2014

18 Pages Posted: 7 Nov 2015

See all articles by Eze Osuagwu

Eze Osuagwu

University of Lagos, Nigeria - Department of Economics; University of Lagos - Department of Economics

Date Written: September 14, 2014

Abstract

There are increasing scholarly debates on the direction of policy to effectively improve the performance of banks. Some scholars argue that bank performance is enhanced by improvements in the internal organization and managerial efficiency others argue that industry wide factors are integral to bank performance. In recent times, the direction of literature has shown that macroeconomic factors play a significant role in determining bank profitability. This paper investigates the determinants of bank profitability in the light of bank specific variables, industry related factors and macroeconomic influences, using a panel of five selected banks that account for over 60% of total bank assets in Nigeria. Findings show that bank profitability is largely determined by credit risk and other factors that relate to the internal organization of banking firms. Market concentration is significant as a determinant of bank profitability. There is no evidence of structure-conduct-performance hypothesis, however empirical results show that there is no collusive behavior among banks. Exchange rate is significant as a determinant of bank profitability through return on equity and non-interest margin, but not significant to return on asset as a measure of profitability.

Keywords: Bank profitability, concentration, market structure, panel data

JEL Classification: D4, E44, G21, L11

Suggested Citation

Osuagwu, Eze and Osuagwu, Eze, Determinants of Bank Profitability in Nigeria (September 14, 2014). International Journal of Economics and Finance, Vol. 6, No. 12, 2014, Available at SSRN: https://ssrn.com/abstract=2687372

Eze Osuagwu (Contact Author)

University of Lagos - Department of Economics ( email )

Akoka
Yaba
Lagos, LA Lagos state 234
Nigeria
+2348033214346 (Phone)

University of Lagos, Nigeria - Department of Economics ( email )

Dan Fodio Boulevard
Yaba
Lagos, 23401
Nigeria
+2348033214346 (Phone)

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