Seminar on Profitability Analysis of Selected Money Deposit Bank in Nigeria
CHAPTER ONE
Objective of the study
The objective of the study are;
- To evaluate the major internal and external determinants of deposit money banks by critically examining these factors on each banks so as to know which ofthem actually have strong effect on bank operational efficiency
CHAPTER TWO
Theoretical Framework
Many theoretical postulates exist on factors that drive profitability in the finance literature in general and those relating to the banking sector in particular. The notable ones among these theories are: portfolio theory, efficient structure theory, resource based theory, frictional theory, finance theory of profit (capital asset), Modigliani-Miller (1958) theorem, signaling hypothesis and arbitrage pricing theory. The portfolio theory emphasizes banks’ investment diversification into different classes of assets in bid to avoiding unsystematic risk. Banks attain efficient portfolio by taking into consideration the risk, and return profile of each class of asset and as well as the size of the portfolio which determines the level of investment in each class of asset. On the other hand, the efficient structure theory states that the ability of a bank to earn profit is predicated on efficiency, implying that efficient banks are able to make higher profit than those not efficient. Efficiency in this sense can be viewed via two approaches efficiency and scale efficiency. The X-efficiency states that banks’ ability to make profit is anchored in its ability to reduce costs. Such firms are inclined to gain larger market shares, which may manifest in higher levels on market concentration, but without any causal relationship from concentration to profitability (Athanasoglou, Delis&Staikouras, 2006). On the contrary, the scale efficiency of banks’ improved profitability is premised on economics of scale arising from size. These economies of scale that is attributable to larger size translate to reduction in operating cost as banks will be able to spread their operations over wide range of activities. The efficient structure theory like the portfolio theory largely assumes that bank’s performance is influenced by internal efficiencies and managerial decisions (Athanasoglou et al., 2006). According to the resource-based theory, every investor commits his resources to a project with the aim of making profit. For profit to be made, firms need some resources that will allow a smooth operation to take place, which will give rise to profit. The theory that best explains this is the resource-based theory. This theory is credited toWernerfelt (1984). It perceives the firm to have a bundle of resources that it combines and utilizes to create capacities that will earn above average profit. The resources therefore serve as the strength to an individual bank that can be used to create competitive advantage.
CHAPTER THREE
METHODOLOGY
Data Sources and Description
The data used for the study are secondary in nature. They are obtained from annual audited account and financial report of banks published in the Nigerian Stock Exchange fact book. A panel data of the total fifteen (15) quoted banks covering a period of nine (9) years was employed. The fifteen banks were selected because they are listed on the Nigeria Stock Exchange and they have their data readily available at the Nigeria Stock Exchange.
CHAPTER FOUR
Conclusion
The regression results for the models revealed that there exists either positive or inverse relationship between Return on Asset and banks specific and macro economic variables. The following recommendations are made based on the empirical findings: While Nigerian banking industry is undergoing a technological innovations with different means of electronic banking and recent embracement of cashless policy, Nigerian deposit money banks must as a matter of urgency re-shape their loan and advances structure. The failure of banks management and credit officers to abide by the banks’ credit guidelines in the consideration of loan proposals results in rising incidence of bad and non performing loans, generating adverse effect on banks’ profitability. This also explains the negativity of loan to total asset coefficients as poor loans implies imprudent use of banks’ asset. Employment of sound management team and credit officers with regular examination of banks asset book by the supervisory bodies is one of the ways out of this danger. Also, the Know-Your- Customer strategy of banks should be strictly addicted to. Adequate and existing collaterals should be a prerequisite for getting loans from banks. High value of intercept implies that there are other variables outside the model that affect profitability. Proper and adequate attention should be given to other variables and indices that can affect banks’ profitability aside the ones encompassed in the model especially researchers should focus on the industry – specific variables.
Recommendation
Finally, the study recommends that future research efforts should be made considering factors that can influence profitability. Also, future studies should be conducted in other sectors or subsectors of Nigerian economy. They may include proper management of the economy in a way that will improve national output, reduce inflation, and set realistic interest rate.
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