Do Macroeconomic Variables Predict Deposit Money Banks’ Performance in Nigeria?

  • Chukwu Agwu Ejem Department of Banking and Finance, Abia State University, Uturu, Nigeria
  • Udochukwu Godfrey Ogbonna Department of Management Science, Rhema University, Aba, Nigeria
  • Onyemachi Maxwell Ogbulu Professor of Finance, Department of Banking and Finance, Abia State University, Uturu, Nigeria
Keywords: Macroeconomic Variables, ROA, ECM, GMM, VAR

Abstract

This study investigated the relationship between macroeconomic variables and the performance of deposit money banks in Nigeria, analyzed with suitable finametric tools. The results of the empirical examination found that all the macroeconomic variables employed (economic growth rate, interest rate, inflation rate, money supply and exchange rate in this study have no significant relationship with bank performance. It was also observed that each and jointly, the macroeconomic variables do not cause bank performance both in the short run and long run. Again, that bank performance responds insignificantly to the shocks of all the macroeconomic variables. Consequently the researchers advocate that deposit money banks in Nigeria with inherent discretionary policy be proactive to the monetary and fiscal policies of regulatory authorities in order to enhance their performance.

Downloads

Download data is not yet available.

References

Aburime, T. U. (2009). Determinants of banks profitability: Macroeconomic evidence from Nigeria. International Economics and Financial Journal, 4(1/2), 69-91.
Acaravci, S.K. & Calim, A.E. (2013). Turkish banking sector’s profitability factors. International Journal of Economics and Financial Issues, 3(1), 27.
Addae, A.A., Nyarko-Baasi, M. & Tetteh, M. C. (2014). Effect of exchange rate movements in Ghanian banks. Journal of Finance and Accounting, 3(3), 62-71.
Adegbaju, A. A. & Olokoyo, F.O (2008). Recapitalization and banks’ performance: A case study of Nigerian banks. African Economic and Business Review, 6 (1): 1 – 17
Adler, M. & Dumas, B. (1980). The exposure of long term foreign currency bonds. Journal of Fiinancial and Quantitative Analysis, 15(4), 973-994.
Akani, H.W., Nwana, I. & Mbachu, A. (2016). Effects of selected macroeconomic variables on commercial banks performance in Nigeria. IIARD International Journal of Banking and Finance, 2(3), 34-75.
Alaba, O.B. (2002). Exchange rate uncertainty and foreign direct investment in Nigeria. Trade Policy Research and Training Programme (TPRTP); Department of Economics, University of Ibadan, Ibadan, Nigeria. SSRN: https://ssrn.com/abstract=2793530 . Retrieved 20/02/2020.
Asutay, M. & Izhar, H. (2007). Estimating for profitability of Islamic banking: Evidence from bank Muamatat Indonesia. Review of Islamic Economics, 11(2), 17-29.
Athanasoglous, P.P., Brissimis, S.N. & Delis, M.D. (2005). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. MPRA Working Paper No.25.
Basher, A. H. M. (2003). Determinants of profitability in Islamic banks: Some evidence from the Middle East. Islamic Economic Studies, 11(1), 31-57.
Bolt, W., DeHaan, L., Hoeberichits, M., Van Oordt, M. R. & Swank, J. (2012). Bank profitability during recessions. Journal of Banking and Finance, 36(9), 2552-2564.
Brooks, C. (2008). Introductory econometric for finance. New York, Cambridge University Press.
Calza, A., Munrieque, M. & Sousa, J. (2006). Credit in the Euro area: An empirical investigation using aggregate data. The Quarterly Review of Economics and Finance, 4(2), 211-226.
Chamberlin, S., Howe, J. S. & Popper, H. (1997). The exchange rate exposure of US and Japanese banking institutions. Journal of Banking and Finance, 21(6), 871-892.
Combey, A. & Togbenou, A. (2017). The bank sector performance and macroeconomics environment: Empirical evidence in Togo. International Journal of Economics and Finance, 9(2), 180-188.
Demirgue-Kunt, A. & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: Some international evidence. The World Bank Economic Review, 13(2), 379-408.
Diamond, D.W. & Dybvig, P. H. (1983). Bank runs, deposit insurance and liquidity. The Journal of Political Economy, 401-419.
Engel, P. & Granger, C. (1987). Co-integration and error correction: representation, estimation, and testing, Journal Econometrica, 55, 251–276.
Enyioko, N. (2012). Impact of interest rate policy and performance of deposit money banks in Nigerian. Global Journal of Management and Business Research, 2(1), 23 – 30.
Francis, M. E. (2013). Determinants of commercial bank profitability in Sub-Saharan Africa. International Journal of Economics and Finance, 5(9), 134.
Granger. C.W.J (1969). Investigating causal relations by econometric models and cross-spectral methods. Journal of econometrica,37( 3).424-438.
Hunjra, A.I., Chani, M.I., Shahzad, M., Farooq, M. & Khan, K. (2014). The impact of macroeconomic variables on stock prices in Pakistan. International Journal of Economics and Empirical Research, 2(1), 13-21.
Isaac, I.C. (2015). Assessing the impact of exchange rate risk on banks performance in Nigeria. Journal of Economics and Sustainable Development, 6(6), 1-13.
Jimenez, G., Ongena, S., Peydro-Alcalde, J. I. & Saurina, J. (2009). Credit supply: Identifying balance sheet channels with loan applications and granted loans. CEPR Discussion Paper Series 7655.
Johansen, S. (1998). Statistical analysis of co-integration vectors. Journal of Economic Dynamics and Control 12, 231-254,
Jung, C. & Seldon, B. (1995). The macroeconomic relationship between advertising and consumption. Southern Economic Journal, 61(3), 577-58.
Khrawish, H. A. (2011). Determinants of commercial banks performance: evidence from Jordan. International Research Journal of Finance and Economics, 81, 148-159.
Khrwish, H.A. & Al-Sa’di, N.M. (2011). The impact of E-banking on bank profitability: Evidence from Jordan. Middle Eastern Finance and Economics, 13, 142-158.
Koirala, J. (2009). Stock market development and economic growth: Evidence from underdeveloped nation (nepal). A research proposal submitted to faculty members, economics department, Tribluva University, Nepal. August, Retrieved from http://www.freestonesoft.com/41955. Retrieved on 4/20/2020
Luehrman, T. A. (1991). Exchange rate changes and the distribution of industry value. Journal of International Business Studies, 22(4), 619-649.
Luft, L. & Omarkhil, H, (2018). Impact of macroeconomic factors on banking profitability. International Finance and Banking, 5(1), 44-69.
Moshood, O. & Ashraf, M. (2012). Bank specific and macroeconomic profitability determinants of Islamic banks: The case of different countries. Qualitative Research in Financial Markets, 4(2/3), 255-268.
Mukhtar T, M. Z., & Ahmed, M. (2007). An empirical investigation for twin deficits hypothesis in Pakistan.Journal of Economic Corporation, 28 (4), 63 – 80.
Okoye, V. & Eze, O. R (2012). Effect of bank lending rate on the performance of Nigerian deposit money banks. International Journal of Business and Management Review, 1(1): 34 - 43.
Osamuonyi, I. O. & Michael, C. I. (2014). The impact of macroeconomic variables on the profitability of listed commercial banks in Nigeria. European Journal of Accounting, Auditing and Finance Research, 2(10), 85-95.
Osuagwu, E.S. (2014). Determinants of banks’ profitability in Nigeria. International Journal of Economics and Finance, 6(12), 46.
Pradhan, R. S. & Shrestha, R. (2016). Impact of bank specific and macroeconomic variables on the performance of commercial banks of Nepal.
Revel, J. (1979). Inflation and financial institution. Financial Times. www.googlescholar.org. Retrieved 26/2/2020.
Saad,W, & El-Moussawi, C. (2012). The determinants of net interest margins of commercial banks in Lebanon. Journal of Money, Investment and Banking, 23, 118-132.
Sayedi, S. (2013). Bank specifc, industrial specific and macroeconomic determinants of banks profitability n Ngeria. Journal of Finance, www.googlescholar.org. retrieved, 6/4/2020.
Scott, A. O. & Ovuefeyen, E. J. (2014). Effects of economic openness and inflation on commercial banks’ profitability: Panel data evidence from Nigeria, post-banking sector consolidation. European Journal of Business and Management, 6(30).
Simiyu, C.N. & Ngile, L. (2015). Effects of macroeconomic variables on profitability of commercial banks listed in the Nairaobi securities exchange. International Journal of Economics, Commerce and Management. www.researchgate.org, retrieved 11/3/2020.
SSRN: https://ssrn.com/abstract=2793530 . Retrieved 13/02/2020.
Sufian, F. & Habibullah, M.S. (2010). Does economic freedom fosters banks’ performance? Panel evidence from Nigeria. Journal of Contemporary Accounting and Economics, 6(2), 77-94.
Tan, Y. & Floros, C. (2012). Bank profitability and inflation: The case of China. Journal of Economics Studies, 39(6), 675-696.
Trujillo-Pounce, A. (2013). What determines the profitability of banks: Evidence from Spain? Journal of Accounting and Finance, 53(2), 561-586.
Wikipedia (2020) General Method Moments (GMM). Available at www.wikipedia.org. Retrieved 23/3/2020
Published
2020-06-30
How to Cite
Ejem, C. A., Ogbonna, U. G., & Ogbulu, O. M. (2020). Do Macroeconomic Variables Predict Deposit Money Banks’ Performance in Nigeria?. American International Journal of Economics and Finance Research, 2(1), 14-33. https://doi.org/10.46545/aijefr.v2i1.193
Section
Research Articles