Economics and Statistics Research Journal (ESRJ)

CAPITAL CONUNDRUM: INVESTIGATING THE NEXUS BETWEEN BANK CAPITALIZATION AND PROFITABILITY IN NIGERIA

Authors

  • Adeola Ogunjimi Brickfield Road Associates Limited. 16, Akin Adesola Street Victoria Island, Lagos, Nigeria

Abstract

The profitability of commercial banks is of paramount importance to the overall health and vitality of an economy. This study delves into the determinants of bank profitability in Nigeria, particularly after a significant round of bank recapitalization in 2005. We address key questions regarding the factors influencing bank profitability in the post-recapitalization era and assess the impact of market power on bank returns. Through empirical analysis, we identify the driving forces behind profitability in Nigeria's commercial banks and examine the relative significance of market power among these determinants. Our findings offer valuable insights for policymakers and stakeholders in fostering a robust financial sector that can effectively support economic growth.

Keywords:

Bank profitability, commercial banks, recapitalization, market power, Nigeria

Downloads

Published

2023-12-13

Issue

Vol. 14 No. 12 (2023): December

Section

Articles

How to Cite

Ogunjimi, A. (2023). CAPITAL CONUNDRUM: INVESTIGATING THE NEXUS BETWEEN BANK CAPITALIZATION AND PROFITABILITY IN NIGERIA. Economics and Statistics Research Journal (ESRJ), 14(12), 93–105. Retrieved from http://zapjournals.com/Journals/index.php/esrj/article/view/1640

License

Copyright (c) 2023 Adeola Ogunjimi

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

References

Aburime, T. U. (2008), Determinants of Bank Profitability: Company-Level Evidence from Nigeria. SSRN Electronic Journal, (1231064), 31. http://doi.org/10.2139/ssrn.1106825

Albertazzi, U. and Gambacorta, L (2009). Bank profitability and the business cycle. Journal of Financial Stability, 5(4), 393-409.

Alkhazaleh, A. M., & Almsafir, M. (2014), Bank Specific Determinants of Profitability in Jordan. Journal of Advanced Social Research, 4(10), 1–20.

Ani, W. U., Ugwunta, D. O., Ezeudu, I. J.& Ugwuanyi, G. O. (2012). An empirical assessment of the determinants of bank profitability in Nigeria: Bank characteristics panel evidence. Journal of Accounting and Taxation 4(3), pp. 38-43.http://doi.org/ 10.5897/JAT11.034

Boadi, I (2015). Profitability Determinants of the Ghanaian Banking Sector in Ongoing Wave of Consolidation. International Journal of Business and Management, 10 (12), 1-11.

Bourke, P. (1989). Concentration and other Determinants of Bank Profitability in Europe. Journal of Banking and Finance, pp 65-80.

Choi, I (2001). Unit root tests for panel data. Journal of International Money and Finance, 20:249–272.

Dietrich, A., & Wanzenried, G. (2011), Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307–327. http://doi.org/10.1016/j.intfin.2010.11.002

Dietrich, A., & Wanzenried, G. (2014), The determinants of commercial banking profitability in low-, middle-, and highincome countries. Quarterly Review of Economics and Finance, 54(3), 337–354 http://doi.org/10.1016/j.qref.2014.03.001

Djalilov, K., & Piesseb, J. (2016), Determinants of Bank Profitability in Transition Countries: What Matters Most? Research in International Business and Finance, 38, 69–82. http://doi.org/10.1016/j.ribaf.2016.03.015

Fisher, R.A. (1932). Statistical Methods for Research Workers, Forth Edition, Edinburgh, Oliver and Boyd.

Flamini, V., McDonald, C., & Schumacher, L. (2009). The Determinants of Commercial Bank Profitability in Sub-Saharan Africa. International Monetary Fund, WP/09/15.

Fungáčová, Z., Solanko, L., & Weill, L. (2010), Market power in the Russian banking industry. International Economics, 124(2010), 127–145. http://doi.org/10.1016/S2110-7017(13)60022-0

Gil-Alana, Yaya, O.S. & Adepoju, A.A. (2015). Fractional integration and structural breaks in bank share prices in Nigeria. Review of Development Finance 5 (1), 13–23.http://dx.doi.org/10.1016/j.rdf.2014.07.004

Hsieh, M. & Lee, C. (2010). The puzzle between banking competition and profitability can be solved: International evidence from bank-level data. Journal of Financial Services Research, Springer; Western Finance Association, 38(2), 135-157.

Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90:1–44.

Levin, Lin and Chu (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108 (1), 1–24.

Maddala, G.S. and Wu, S., (1999). A Comparative Study of Unit Root Tests with Panel Data and A New Simple Test.

Oxford Bulletin of Economics and Statistics, 61, 631-652.

Mamatzakis, E. C., Remoundos, P. C., (2003). Determinants of Greek Commercial Banks Profitability, 1989-2000. SPOUDAI 53(1), 84-94.

Molyneux, P. & Thornton, J. (1992). Determinants of European Bank Profitability: A Note. Journal of Banking & Finance, 16(6), 1173-1178.http://doi.org/10.1016/0378-4266(92)90065-8

Naceur, S. B & Goaied, M (2008). The Determinants of Commercial Bank Interest Margin and Profitability: Evidence from Tunisia. Frontiers in Finance and Economics, 5(1), 106-130

Naceur, S. B. & Omran, M. (2011). The effects of bank regulations, competition, and financial reforms on banks' performance. Emerging Markets Review, 12 (1), 1-20.

Oxford Analytica. Daily brief on Finance. ttps://dailybrief.oxan.com/Sectors/Finance

Park, K. H., & Weber, W. L. (2006), Profitability of Korean banks: Test of market structure versus efficient structure. Journal of Economics and Business, 58(3), 222–239. http://doi.org/10.1016/j.jeconbus.2005.09.003

Pasiouras, F. & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. International Business and Finance, 21, 222-237.

Pedroni, P. (2004). Panel cointegration; asymptotic and finite sample properties of pooled time series tests, with an application to the PPP hypothesis. Econometric Theory, 20:575–625.

Petria, N., Capraru, B., & Ihnatov, I. (2015), Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems. Procedia Economics and Finance, 20(15), 518–524. http://doi.org/10.1016/S2212-5671(15)00104-5

Short, B. (1979). The Relationship between Commercial Bank Profit Rates andBanking Concentration in Canada, Western Europe and Japan. Journal of Banking and Finance, 3(3), 209-219

Sufian, F. & Habibullah, M.S. (2010).Developments in the efficiency of the Thailand banking sector: a DEA approach.

International Journal of Development Issues, 9(3), 226 – 245 http://dx.doi.org/10.1108/14468951011073316.

Sufian, F. & Habibullah, M.S. (2012). Developments in the efficiency of the Malaysian banking sector: the impacts of financial disruptions and exchange rate regimes. Progress in Development Studies, SAGE Publishing, 12(1), 19-46.

Tariq, W., Usman, M., Mir, H.Z., Aman, I. & Ali, I. (2014). Determinants of Commercial Banks Profitability: Empirical Evidence from Pakistan. International Journal of Accounting and Financial Reporting, 4(2), 2162-3082. http://dx.doi.org/10.5296/ijafr.v4i2.5939

Titko, J., Skvarciany, V., & Jurevičienė, D. (2015), Drivers of bank profitability: Case of Latvia and Lithuania. Intellectual Economics, 9(2), 120–129. http://doi.org/10.1016/j.intele.2016.02.003

Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53: 561–586. doi:10.1111/j.1467-629X.2011.00466.x.