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DETERMINANTS OF BANKS FINANCIAL PERFORMANCE:
EVIDENCE FROM SEVEN COMMERCIAL BANKS IN NIGERIA
Hudu Gambo1 [email protected]
Ahmad A. Maiyaki1
Muktar S. Aliyu1
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
Sahel Analyst (AJOM): ISSN 1118- 6224 Page 66
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
Sahel Analyst (AJOM): ISSN 1118- 6224 Page 67
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
African Journal of Management (Vol.3, No.5 2018), Business Admin. University of Maiduguri
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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
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in Nigeria policy
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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.
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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
Equity (ROE) of DMBs in Nigeria.
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
Equity (ROE) of DMBs in Nigeria.
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
Determinants of Banks Financial Performance: Evidence from Seven Commercial Banks
in Nigeria policy
Sahel Analyst (AJOM): ISSN 1118- 6224 Page 71
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
African Journal of Management (Vol.3, No.5 2018), Business Admin. University of Maiduguri
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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.
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in Nigeria policy
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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
Source: STATA Output 2018
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
Source: STATA Output 2018
African Journal of Management (Vol.3, No.5 2018), Business Admin. University of Maiduguri
Sahel Analyst (AJOM): ISSN 1118- 6224 Page 74
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
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in Nigeria policy
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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
African Journal of Management (Vol.3, No.5 2018), Business Admin. University of Maiduguri
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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
Determinants of Banks Financial Performance: Evidence from Seven Commercial Banks
in Nigeria policy
Sahel Analyst (AJOM): ISSN 1118- 6224 Page 77
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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