The Effects of Financial Intermediation on Bank Performance in Nigeria from 1980-2019

Abstract

The study empirically examines the effect of financial intermediation on bank performance in Nigeria from 1980-2018. A time series data from IMF Global financial development database and World Bank data base was used. A diagnostic analysis of test for stationarity was conducted to ensure that regression results were not spurious, using Augmented Dickey-Fuller (ADF) unit root test; the results indicate all the variables are stationary at 1(1) respectively. The ARDL result indicates that LROA has a negative and significant relationship with LROA; LFID has a positive but non-significant relationship with LROA; LFIE has a negative and significant relationship with LROA and LFII has positive and significant relationship with LROA respectively. The R² indicate the fitness of model and relationships with the explanatory variables.  Furthermore, the result of Granger Causality test indicates that the relationship between financial intermediation and bank performance is Bidirectional. The study adopted IMF Global Financial Development index indicators on access, depth, efficiency and stability. The dependent and independent variables used for the study includes; bank performance proxy with return on asset (LROA) while, financial intermediation proxy with financial development index (LFDI), financial intuitions access index (LFIA), financial institution depth index (LFID), financial institution efficiency index (LFIE), and financial institution index (LFII). While E-views econometric statistical package 10.0 was used for the data analysis. The study recommends among others, that the key players in the financial sector should ensure those policies towards improving access to financial services and its efficiency as a major driving force and sustainable economic development propeller bearing a life wire for the survival of the banking industry; as such both the financial and regulatory authorities must provide adequate score cards on the number of bank branches and outlets either in quarterly basis or yearly for proper management as to avoid excessive use of these policies to prevent economic distortions.