Macroeconomic Variables and Profitability of Deposit Money Banks Listed in Nigeria

Abstract

Deposit money banks will for long remain a dominant institution in the Nigeria economy because of the vital positions they play in the allocation of the country resources. In addition, a bank must be profitable in other to carry out all of its duties effectively but the inconsistency in the fluctuation of macroeconomic indicators such as the Inflation Rate, Monetary Policy Rate and Exchange Rate still threatens the day to day activities of deposit money banks operating in Nigeria as at today. This paper investigated macroeconomic variables and profitability of deposit money banks listed in Nigeria. The paper employed ex-post facto research design. The Fully Modified Ordinary Least Square (FMOLS) model was used to investigate the relationship between macroeconomic and banks profitability. The population was 15 deposit money banks in Nigeria. The sample size focused on 10 leading listed deposit money banks on the Nigeria Stock Exchange for a period of 10-years (2009 - 2018). Data was obtained from the published abstract of statistics, statistical bulletin and published annual reports of the selected financial institutions, validated by certification of external auditors and CAMA. The study adopted the use of panel data analysis. The paper indicated heterogeneous effects exist between macroeconomic variables and profitability of deposit money banks listed in Nigeria. ROA, ROE was not really affected by the macroeconomic variables but PBT was affected by INFR and MPR. PBT (F-stat =43.00972, Adj.R²= 0.250093, p= 0.000). The paper concluded that there was a negative significant effect of these macroeconomic variables on the profitability of listed deposit money banks in Nigeria. The paper therefore recommended that government and other regulatory bodies should put in measures to ensure a decrease in macroeconomic variables.