determinants of banks financial performance: evidence from seven commercial banks … ·...

Sahel Analyst (AJOM): ISSN 1118- 6224 Page 65

DETERMINANTS OF BANKS FINANCIAL PERFORMANCE:

EVIDENCE FROM SEVEN COMMERCIAL BANKS IN NIGERIA

Hudu Gambo1 [email protected]

Ahmad A. Maiyaki1

[email protected]

Muktar S. Aliyu1

[email protected]

Abstract

This research work was undertaken to empirically investigate the

determinants of firm’s financial performance of listed deposit money banks

(DMBs) in Nigeria. Annual data covering the study period of 2013 – 2017

from seven (7) sampled commercial banks were obtained from the Nigerian

Stock Exchange publications, Central Bank of Nigeria statistical bulletins, the

Securities and Exchange Commission bulletins and the published annual

accounts of DMBs. Panel data methodology was employed while the random

effects model was chosen as estimation technique against fixed effect. The

results revealed that capital adequacy, liquidity management and firms' size

were positive but insignificantly influencing returns on equity, assets quality

and dividend payout ratio were found to be negative and statistically

insignificant with returns on equity while management efficiency and

leverage was found to be negative but statistically significant with return on

equity. Therefore, it is recommended that the management of deposit money

banks in Nigerian banking industry especially the Central bank of Nigeria as

supervisory body regulating banking activities, should urgently have a review

on capital adequacy requirements as specified in the prudential guidelines as

the regression results has shown that poor capital adequacy, inadequate

liquidity management has also resulted in poor financial performance and

also banks should focus on improving and maintaining high level and

profitable liquidity management and efficiency to enhance their performance.

Keywords: Firms, Financial performance, Deposit money banks, Nigeria

1 Department of Business Administration and Enterpreneurship,

Bayero University, Kano. Nigeria

African Journal of Management (Vol.3, No.5 2018), Business Admin. University of Maiduguri


Introduction

Globally, banks' performance is considered very important as well as

necessary mechanism for the survival of the financial sector of any economy

of the world. Also, the soundness of a banking system is the most crucial

pillar for economic development (Ongore & Kusa, 2013). Hence, banks are

the most involved financial institutions in the financing of the economy. Last

two decades studies have shown that banks in Sub-Saharan Africa (SSA) are

more profitable than the rest of the world with an average Return on Assets

(ROA) of 2 percent (Flamini, Valentina, McDonald, & Liliana, 2009). This

trend let to many banks to engage in mergers and acquisitions in many

country's banking sector, especially Nigeria inclusive (Ojong, Bassey, & Awo

2014). The rate at which banks are failing in Nigeria has become a major

source of concern for the stakeholders and practitioners in the banking

industry. From the year 1994 to 2006, forty eight (48) Deposit Money Banks

(DMBs) were liquidated (NDIC, 2011). In 2005, the number of licensed

banks operating in Nigeria were reduced to twenty four (24) due to the

recapitalization and consolidation exercise, but as a result of merger and

acquisitions, the total number of banks operating in Nigeria as at 2014 are

twenty one (21) and now DMBs are eighteen (16) as at 2017.

The major causes of the above banks failure can be attributed to poor

risk management, poor asset quality, inefficient management, poor liquidity

management, etc (Hamisu, 2011). The crises in the banking sector led to the

establishment of Nigeria Asset Management Corporation of Nigeria

(AMCON) which commenced operation in the year 2010 to take over the

management of the toxic assets in the books of the banks and also the

management of failing banks in Nigeria such as Mainstream Bank Keystone

banks, and Enterprise Bank. In spite of the measures put in place aimed at

protecting depositors and other public interest, the incidence of bank distress

and failure has been on the high increase in Nigeria. Therefore, the immense

contribution of banking sector to the growth and development of any country

cannot be over-emphasized because of the aforementioned role of mobilizing

the scarce resources in economy. over the last couple of decades, financial

sector plays a striking role in the advancement and growth of almost every

economy in the world regardless of size, temperament and nature of

economy. It has been observed from the facts that the banking industry is

flourishing tremendously (Bagh, khan, & Razzaq, 2017).

Good performance of the banking sector puts strong confidence in the

mind of depositors and thereby encouraging savings in the pace of economy.

High rate of non-performing loans, increased in loan loss provisions,

increases in the returns of bank default and reduction in interest income

which serves as the bulk revenue portfolio for banks to the ineffectiveness of

the risk management of Nigerian banks. Business activities are most at times

unpredictable and can lead to changes in the borrower’s financial position and

Determinants of Banks Financial Performance: Evidence from Seven Commercial Banks

in Nigeria policy


affects their ability to repay the loans at the date of maturity (Hamisu, 2011).

With the above bank scenario. This can negatively affects the interest income

accruing from such loans, reduces bank performance and also reduces its’

capabilities to meet its’ financial obligations as they fall due and again lead to

massive sack of employees. As these conditions remain unchecked, the

liquidity of the bank is also threatened. It is a clear indication that the

investments made by investors in intangible assets are not enough which may

be connected with unimpressive performance of the banks.

A careful search and review of literature suggests that several studies

were done to examine financial performance of banks both in Nigeria and

other countries such as studies conducted by (Ojong, Bassey, & Awo, 2014;

Farooq, et-al, 2015; Kinyuai, 2017; Bagh, Asif, & Razzaq, 2017; Wanjohi,

Wanjohi, & Ndambiri, 2017; Shen, Chen, Kao, & Yeh, 2018;) investigate the

bank specific factors on banks financial performance and found a significant

and positive association between bank specific factors and bank performance

measures. Samad, (2015) suggests that future research should include more

bank internal factors as well as bank external factors in the determinants of

bank profitability. Therefore, in view of the inconsistent and mixed findings

on these study variables, this present study becomes necessary. In addition, in

the extent literature, there are no study focusing dividend payout ratio and

leverage as determinant factors of financial performance of DMBs in

Nigeria. Therefore, This research seeks to fill the gap by extending the model

used by Samad, (2015) and thereby including dividend payout ratio and

leverage in the model to study the joint determinants factor affecting the

banks' financial performance in Nigeria.

The Study is divided into five sections. section one introduces the

study, section two presents a review of current and related literature on the

Study, section three discusses the research methodology, section four is the

analyses, while the summary, conclusion and recommendations are in section

five

Literature Review

This section review literature of Bank Determinant Factors and its

performance measurement used in the study, discussion of conceptual

framework, empirical findings and the key theories underpinning the study on

variables under the theoretical framework.

Haron, (2004) Conducted a study using panel data regression analysis with

inclusion of dummy variables in the study determinants of Islamic bank

profitability found that liquidity had a significant positive relationship with

total income received and profit, which is contrary to the findings of Guru,

Stanton and Shanmugan (1999) in the study determinants of commercial

banks profitability in Malaysia where they found that liquidity has a negative

relationship with profit though not very significant. Haron (2004) also found



no significant relationship between liquidity and profitability measures which

were deflated against total capital and reserves. They also found a positive

relationship between capital structure and profitability measures which were

deflated against total asset. Capital structure has no significant relationship

with total income which implies that additional capital cannot generate more

income for banks. Guru et.al (1999) found expense management to be a main

contributor to profitability performance in Malaysian banks. Also capital

adequacy, inflation, loan component and investment in securities were found

to have positive and significant impact on profitability. On the contrary, there

was found to be a negative but statistically significant correlation between

capital ratio, loan, discount rate, investment securities, share deposit, size of

the banks of banks and profitability. While, deposits, interest expense, bank

risk and bank reputation maintains a positive and significant relationship with

profitability of US banking industry during the period 1995-2007 (Hoffmann,

2011).

Bashir, (2003) in the study determinants of profitability in Islamic

banks; evidence from Middle East, through panel regression analysis for

fourteen Islamic banks between the year 1993 to 1998 found that capital

adequacy, risk indicators, GDP, inflation and loan has strong, positive and

robust link with profitability, but the relationship of capital adequacy, loan

total asset with profitability is statistically insignificant. Contrarily, in

Tunasian banks via balanced panel regression, capital adequacy, overhead to

asset ratio, loan to asset post a significant and positive influence on

profitability and GDP, inflation, size and non-interest bearing asset ratio are

insignificant in determining the profitability of Tunasian banks, though size

has the most negative relationship with bank’s profitability (Naceur, 2003). In

conjunction with the findings of Naceur (2003), Kusa and Ongore (2013) in

the study, determinants of financial performance of commercial banks in

Kenya using panel data multiple linear regression analysis found that capital

adequacy and management efficiency has significant and positive relationship

with return on asset (ROA), return on equity (ROE) and Net interest margin

(NIM), which are all profitability measures. Inflation and asset quality also

post a negative influence on profitability. While, GDP, liquidity management

has positive but insignificant relationship with profitability measures except

for GDP who had a positive but also insignificant influence on Net Interest

Margin (NIM).

Andrea (2012) in the study determinants of bank profitability in USA

covering the period 2007-2011 found that cost to income ratio, funding cost,

loan loss provision and leverage had a negative but significant influence on

bank’s return on asset (ROA), while interest income share had positive and

significant influence on financial performance of banks in USA. Fakhari and

Yousefalitabar, (2010) studied the relationship between dividend policy and

corporate governance in Tehran stock exchange companies. They selected


in Nigeria policy


125 companies in stock exchange during 2004 - 2007 as a sample. Business

governing index was divided into 8 classes based on a checklist as disclosure,

commercial ethics, observing legal obligations, auditing, ownership, board of

directors' structure, asset' management and liquidity. Their findings reveals

that there is an inverse relationship between the business governing and

dividend i.e. companies in stock exchange use dividend to gain reputation

(prestige) and credit but in spite of a significant relationship between

corporate governance and dividend, the effect of corporate governance on

dividend is low.

Nazir, Musarat, Waseem and Ahmed, (2010) applied fixed effect and

random effect models to test the role of corporate dividend policy in

determining the volatility in the stock price for 73 firms listed in Karachi

Stock Exchange (KSE-100) indexed. Contradict to Rashid and Rahman,

(2008), the researcher found that the share price volatility is significantly

influence dividend policy as measured by dividend payout ratio and dividend

yield. The result of the empirical findings made by Zakaria, Muhammad and

Zulkifli, (2012) also suggests there is a significant positive relationship

between the dividend payout ratio of a firm and share price volatility. Afzal

and Mirza, (2010) find positive association of operating cash flow and

profitability with dividend policy. Agyei and Marfo-Yiadom, (2011) study the

relationship between dividend policy and performance of 16 commercial

banks in Ghana for a period of 5 years (1993-2003). Result shows a positive

relationship between dividend policy and performance. It further reveals that

leverage, size of a bank and growth, enhance the performance of banks.

The pecking order theory posits that firms prefer internal finance.

They adapt their dividend payout ratios to their investment opportunities,

while trying to avoid sudden changes in dividends. Where there is fluctuation

in profitability and investment opportunities, the internally generated cash

flows, could be greater than or less than capital expenditure. If it is more, the

firm will pay off its debt or invest in short-term marketable securities. If it is

less, the firm drawdown its cash balance or sell off its short-term marketable

securities. However, if the firm must resort to external financing it starts with

debt, then possibly hybrid securities such as convertible bonds, and then

equity as a last resort. The pecking order theory assumes that debt ratios

change when there is an imbalance of internal cash flow, net of dividends and

real investment opportunities. Thus highly profitable firms with limited

investment opportunities try to maintain a low debt ratio while firms whose

investment opportunities outrun internally generated funds are driven to

maintain a high debt ratio. The pecking order theory can be considered in

terms of the constant growth stock valuation model.



Independent Variable

Figure 1: Model of the Study

Source: The researcher 2018

Based on the research model above, the following null hypotheses were

formulated:

Ho1: There is no significant relationship between Capital adequacy and

Return on Equity (ROE) of DMBs in Nigeria.

Ho2: There is no significant effect between assets quality and Return on

Equity (ROE) of DMBs in Nigeria.

Ho3: There is no significant effect of Management efficiency and Return on


Ho4: There is no significant effect between Liquidity management and Return

on Equity (ROE) of DMBs in Nigeria.

Ho5: There is no significant effect of Dividend Payout Ratio (DPR) on Return

on Equity (ROE) of DMBs in Nigeria.

Ho6: There is no significant relationship between Leverage and Return on


Research Methodology

Research Design

This research paper employs the use of Ex-Post Facto research design.

This is because it involves events which have taken place. The importance of

Ex-Post Facto research design is that it is a realistic approach in solving

business and social science problems which involves gathering records of

past event (Ordu, Enekwe, & Anyanwaokoro, 2014). This research relied

heavily on historical data, as the data to be used in the analysis will be

generated from annual financial reports, internet and fact-books of the

Nigerian Stock Exchange.

Population and Sample

Sixteen (16) licensed deposit money banks operating in Nigeria as at

31st December, 2017 formed the population for the study out of which seven

were selected based on some criteria which are: (i) Banks that are wholly or

majorly owned by Nigerians; (ii) Banks that retained their brand names over

Banks' specific factors Capital adequacy Assets quality Management efficiency Liquidity management Dividend Payout Ratio Leverage Firms' Size

Financial Performance ROE

Dependent Variable


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Sahel Analyst (AJOM): ISSN 1118- 6224 1

time; (iii) Banks that experienced either universal reform or consolidation

reform in Nigeria and (iv) Banks that also experienced merger and

acquisitions in Nigeria. Based on these criteria, the seven banks selected are:

First Bank PLC, United Bank of Africa (UBA), Guaranteed Trust Bank

(GTB), Union Bank, First City Monument Bank (FCMB), Access Bank, and

Zenith Bank.

Operationalization of the Study Variables This section presents the measurements that were used to operationalise the

study variables. Variables Measurements

Return on equity (ROE) Total income / total Equity

Capital adequacy (CA) Total Capital / Total Asset

Assets quality (AQ) Non-performing loans / total loans

Management efficiency (ME) Total Operating Revenue / Total Profit

Liquidity Management (LM) Total Loans / Total Customer Deposit

Dividend payout ratio (DPR) Dividend per share / Earnings per share

Leverage (LEV) Total Debt / Total assets

Model Specification

Generalized Least Square (GLS) methods using Fixed-Effect and

Random-Effect models were applied to test the various hypotheses. The

choice of the GLS Regression over the Pooled Ordinary Least Square (OLS)

regression was as a result of the fact that it is the best for panel data

(Wooldridge, 2002). The Fixed-Effect and Random-Effect models give the

researcher an opportunity to have insights and understanding of variations

within individual units and among the cross-sections simultaneously over

time (Gaur & Gaur, 2006). STATA Software Package was used for the study.

The major dependent performance indicators used were Return on Asset

(ROA), while the major determinants (independent variables) were capital

adequacy, asset quality, management efficiency liquidity management;

dividend payout ratio and leverage were proxied as bank specific

determinants. The CAMEL (i.e capital adequacy, asset quality, management

efficiency and liquidity management ratios are the popular bank specific

factors often used in representing bank specific factors in relation to

performance. The CBK also uses CAMEL ratios to evaluate the performances

of commercial banks (Olweny & Shipho, 2011). In this study the following

baseline model was used:

π = α + αCA+ αAQ+ αME+ αLM + αDPR+ αLEV + ε

………………….………(1)

Where: π = Performance of Bank i at time t as expressed by ROE

α = Intercept

CAit = Capital Adequacy of bank i at time t

AQit = Asset Quality of bank i at time t

MEit = Management efficiency i at time t



LMit = Liquidity management

DPRit = Dividend payout ratio i at time t

LEVit = Leverage i at time t

ε = The error team

Result and Discussion of Findings

This section presents the descriptive statistics describing the trends of

the variables within the period covered by the study by followed by

correlation matrix which analyses the association between dependent and

each explanatory variable individually and cumulatively.

Table 1: Descriptive Statistics

Variables Observation Mean Std. Dev. Min Max

ROE 35 0. 2059988 0.3936489 0.0008493 2.409359

CA 35 45.71146 44.56468 0.0863237 148.7058

AQ 35 0.0354625 0.0299643 0.0049581 0.173176

ME 35 1.19161 0.5097706 0.1148959 3.455872

LM 35 0.1447339 0.0815128 0.000562 0.2940588

LEV 35 0.3337407 0.254712 0.0954357 0.9504132

DPR 35 0.786895 0.2172037 0.0813253 0.9110486

FIRMA'SIZE 35 7.672349 1.451297 6.001195 9.613021

Source: STATA Output 2018

From table 1, the returns on equity (ROE) of deposit money banks in

Nigeria has an average value of 0.2059988 and standard deviation of

0.3936489 with a respective minimum and maximum values of 0.0008493

and 2.409359. The CA, AQ, ME, LM, LEV, DPR and Firms 'size mean

values are 45.71146, 0.0354625, 0.0261484, 0.1447339, 0.3337407,

0.786895, and 0.672349 respectively. Their respective standard deviations

are 0.3936489, 44.56468, 0.0299643, 0.5097706, 0.0815128, 0.254712,

0.2172037 and 1.451297. The table also shows minimum values of

0.0008493, 0.0863237, 0.0049581, 0.1148959, 0.000562, 0.0954357,

0.0813253 and 6.001195 respectively while their respective maximum

values are 2.409359, 148.7058, 0.173176, 3.455872, 0.2940588, 0.9504132,

0.9110486 and 9.613021.

Table 2: present the correlation coefficient of the dependent and

independent variables having the coefficient ranging from -1 t0 1. The sign of

the correlation indicates the directional relationship (either positive or

negative) between the dependent and independent and all diagonal values are

1.0000 because each variables of the study has a perfect positive linear

relationship.


in Nigeria policy


Table 4.2: Correlation Matrix Table

ROE CA AQ ME ML LEV DPR FIRMA'S

IZE

ROE 1.0000

CA -0.1662 1.0000

AQ -0.0837 -0.0008 1.0000

ME -0.0773 0.0153 0.0087 1.0000

LM 0.0504 0.4063 -0.2911 0.0028 1.0000

DPR -0.1041 -0.0720 -0.1500 -0.0663 0.1616 1.0000

LEV -0.5511 0.1239 -0.1674 -0.3998 -0.0487 0.1508 1.0000

FIRMA'

SIZE

0.2369 -0.8652 -0.2442 0.1101 -0.3531 -0.0020 -0.1571 1.0000


The above correlation matrix table shows the association between all

the pairs of variables in the regression model. The result reveals a mixture of

positive and negative correlations between the explanatory variables and

dependent variables as used in the study. The results shows LM and firms

size has a positive relationship with returns on equity in the Deposit Money

Banks in Nigeria during the period of the study while the rest of the

explanatory variables negatively correlated with ROE. As seen in table 2. The

CA, AQ, ME, DPR, and LEV are having a negative correlation coefficient

with ROE at -0.1662, -0.0837, -0.0773, and -0.1041 respectively. While ML

and firms' size has a positive relationship with ROE at 0.0504 and 0.2369

respectively.

Table 3: Regression Results

Variables Coefficient t- value p-value Tolerance value VIF

Constant 0.9371492 0.94 0.356

CA 0.0015017 0.51 0.612 0.178499 5.60

AQ -1.61988 -2.67 0.508 0.581084 1.72

ME -0.3029571 -2.49 0.019 0 .788115 1.27

LM 0.1080559 0.13 0.897 0 .668018 1.50

DPR -0.0530163 -0.23 0.819 0.885710 1.13

LEV -1.2631432 -4.27 0.000 0.735280 1.36

FIRMSIZE 0.0801151 0.84 0.407 0.159613 6.27

R2 0.4712

Adjusted R2 0.3340

F- Stat 3.44

F- Sig 0.0093

R2 :Within 0.3136

Between 0.9741

Overall 0.4712

Rho 0

Lagrangian test 1.0000

Hausman test 0.9980




Prior to design panel data models, it is necessary to verify the

problem of multicollinearity between independent variables (Burca and

Batrinca, 2014, p. 304). The Variance Inflation Factor (VIF) is a commonly

used for testing the multicollinearity problems. It shows the degree to which

each independent variable is explained by other independent variable. As a

rule of thumb, a VIF greater than 10 indicates the presence of harmful

collinearity (Gujarati, 2003). Table 4 shows the Variance Inflation Factor

(VIF) of all the variables of this study. The results show that VIF for all the

variables are less than 10 and the problem of multicollinearity is not present

in the model.

The commutative association between the regressed and the

regressors is 0.4712 indicating that the relationship between banks' specific

determinants and returns on equity used in the study accounts for about .47%.

This implies that for any change in banks' specific determinants in deposit

money banks in Nigeria, their returns on equity will be directly affected. The

cumulative adjusted R2 (0.3340), which is the multiple coefficient of

determination, gives the percentage of the total variation in the dependent

variable explained by the explanatory variables jointly. Hence, it signifies that

the explanatory variables of banks' specific determinants as used in the study

caused 33% of total variation in returns on equity in deposit money banks in

Nigeria during the period of the study. This indicates that the model is fit and

the explanatory variables are properly selected, combined and used in the

study as proved by the 1% level of significance while 67% was caused by

other factors not included in the model.

Ho1: In testing the hypothesis one about the relationship between CA

and Returns on Equity (ROE) in Deposit Money Banks in Nigeria, a t-value

was obtained from the OLS regression model for financial performance

(ROE) at 0.51 and a beta coefficient of 0.1554003 were given by the

regressions which is positive but statistically not significant. This signifies

that as CA increase, financial performance increases as measured by ROE

with no significant effect. However, the null hypothesis is rejected. The

findings are consisted with that of Tefera (2011), Fan and Yijun (2014),

Singh, (2015).

Ho2: To test the hypothesis which states that There is no significant

effect between assets quality and Return on Equity (ROE) of DMBs in

Nigeria also a t-value was obtained from the OLS regression model for

financial performance (ROE) at -2.67 and a beta coefficient of -1.61988 were

given by the regressions which is negative and statistically not significant.

This indicates that as AQ increases, the financial performance reduces as

measured by ROE with no level of significance. However, the null hypothesis

is accepted. The findings is consistent with Awo and Akotey (2011), Ana et.

al (2011), Ramadan et. al (2011), Darydenko (2010), Vong and Chan (2007).

This is a strong indication that banks needs to work on their loan


in Nigeria policy


disbursement. This was contrary with the findings of Darydenko (2010),

Ramadan (2011) but consistent with Alper and Anbar (2011) who found that

assets quality do not have a significant and positive impact on bank’s Return

on equity.

Ho3: In testing this hypothesis which stated that there is no significant

effect between Management efficiency and Return on Equity (ROE) of

DMBs in Nigeria, a t-value was obtained from the OLS regression model for

financial performance (ROE) at -2.49 and a beta coefficient of -0.3029571

were given by the regressions which is negative but statistically significant at

10% level. This signifies that as ME increases, the financial performance

increases as measured by ROE with 10% level of significance which formed

the bases for accepting the hypothesis. This findings is in line with the

findings of Ongore and Kusa (2013), Haron, 2004) but contradict that of

Farooq, et-al, (2015) and Kinyuai (2017).

Ho4: There is no significant effect between Liquidity management

and Return on Equity (ROE) of DMBs in Nigeria. In testing this hypothesis,

a t-value was obtained from the OLS regression model for financial

performance (ROE) at 0.13 and a beta coefficient of 0.1080559 were given

by the regressions which is positive but statistically no significant effect with

financial performance measured by ROE. This indicates that as LM increases,

financial performance increases with no significant level. The null hypothesis

were rejected. This study is in line with that of Ongore and Kusa (2013).

However, contradict the study conducted by Ramadan, Kilani and Kadduni,

(2011).

Ho5: There is no significant effect of Dividend Payout Ratio (DPR)

on Return on Equity (ROE) of DMBs in Nigeria. In testing this hypothesis, a

t-value was obtained from the OLS regression model for financial

performance (ROE) at -0.23 and a beta coefficient of -0.0530163 were given

by the regressions which is negative and statistically insignificant effect with

financial performance measured by ROE. This result is not surprising as the

researcher expects that dividend payout ratio will influence returns on equity

positively and significantly. This signifies that as DPR decreases, the

financial performance also decreases at the same proportion. This serves as an

evidence to accept the null hypothesis. The results is also it is inconsistent

with dividend relevancy theory while it supports dividend irrelevancy theory.

The findings is in agreement with that of Smits (2012); Al-Hasan (2013);

Abdelwahed (2014) while Adediran (2013); Yegon, et al (2014) and Adediran

and Alade (2013) found no statistically effect on firms' performance.

Ho6: To test the hypothesis which states that leverage has no

significant relationship with returns on equity in deposit money banks in

Nigeria, a positive and statistically strong significant effect was established.

The regression results give a t-value of -4.27 and beta coefficient value of -

1.2631432 which is at highly significance at 10%. This result is not surprising



as it is not in variance with the researchers expectations. Thus, the hypothesis

of the study is hereby rejected. The result also affirms pecking order theory.

This results supports the findings documented by Antwi, Mills and Zhao,

(2012), Ahmad, Abdullahi and Roslan (2012). Conversely, the results

disagreed with that of.Rayan (2008), Ogbulu and Emeni (2012) and Lawal

(2014).

Lastly, in examining the influence between firms size and returns on

equity in deposit money banks in Nigeria, a t-value of 0.84 and a coefficient

of 0.0801151 was given by regression result which shows a positive but

statistically insignificant. This signifies the larger the firm size, the better will

be the returns on equity but insignificant. The result formed the basis of

failing to reject the hypothesis which states that firms size has no significant

influence on returns on equity in deposit money banks in Nigeria. This

findings support that of Rizqia and Sumiati (2013); Rajhans and Kaur (2013).

In contrast, it disagrees with the one documented by Hemmelgarn and

Teichmann (2013) .

Conclusion and Recommendation

The study examines banks' specific determinants of seven (7) listed

deposit money banks in Nigeria using regression model with panel data for a

period of five year, 2013-2017. The study reveals that banks' specific

(Internal) factors are important to the bank financial performance in Nigeria .

Among the bank internal factors, Management efficiency and Leverage are

positively and strongly significant factors for determining DMBs financial

performance in Nigerian banking industry while Capital adequacy, Asset

quality, Liquidity management, Dividend payout ratio and Firms' size were

found to be insignificant factor in influencing the financial performance of

DMBs in Nigeria. Therefore, it is recommended that the management of

deposit money banks in Nigerian banking industry especially the Central

bank of Nigeria should urgently have a review on capital adequacy

requirements as specified in the prudential guidelines as the regression results

has shown that poor capital adequacy has also resulted in poor financial

performance and also banks should focus on improving and maintaining high

level and profitable liquidity management and efficiency to enhance their

performance.

Limitation and Suggestion for Future Research

This study limited to only specific factors in DMBs performance for

period of five year, similar research should include other external variables

such as inflation rate and market structure behaviour and the like for robust

conclusions and policy prescriptions. The current study adopts secondary data

primarily obtained from the seven selected DMBs' financial statements, other

studies on bank specific determinants and financial performance measures


in Nigeria policy


should incorporate the use of primary data and the period of the study can be

extended to empirically examine the same issue.

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