IMPACTS OF INTERNAL AND EXTERNAL FACTORS ON PROFITABILITY OF BANKS IN NIGERIA

Shuaib Ndagi Sayedi

Department of Business Administration, Faculty of Management and Social Sciences, Ibrahim Badamasi Babangida University, P.M.B II, Lapai – Niger State, Nigeria

ABSTRACT

The profitability of banks is measured by internal and external factors. The former is bank-specific (controllable) and the latter is industrial/macroeconomic (uncontrollable) factors. The objectives of the study were to examine the impacts of liquidity, market power and interest rate on the profitability of banks in Nigeria. The population of study is fifteen (15) quoted Deposit Money Banks in the Nigerian Stock Exchange (NSE). Data are collected from secondary source of the quoted banks’ annual reports (2006 – 2011). Linear regression is used as tool of the analysis of the study. The empirical results of model one show that market power has significant positive impact on profitability (ROA). Liquidity has insignificant positive impact on profitability (ROA) while interest rate has insignificant negative impact on profitability (ROA). The model two results indicate that market power has insignificant positive impact on profitability (ROE). liquidity has significant positive impact on profitability (ROE) while interest rate has insignificant negative impact on profitability (ROE). The study recommends that banks managements should increase and maintain their market share known as market power. The reason is that, a rise in market power has impact on profitability despite insignificant positive impact of market power on banks profitability (ROE). Secondly, maintain and increase liquidity level because a rise in liquidity has impact on profitability despite insignificant positive impact of liquidity on banks profitability (ROA). Lastly, adequately anticipate interest rates fluctuations. This is because stable and increase interest rates add value to profitability despite significant negative impact of interest rate on the profitability of banks in Nigeria.

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