Determinants of Financial Performance in Nigerian Deposit Money Banks: The Role of Bank-Specific and Macroeconomic Factors

Deposit money bank (DMBs) in Nigeria have been grappling with serious challenges, which has resulted in fluctuations in the key performance indicators, especially earnings and profitability, which has been on decline over the years. This necessitates determining the effect of banks; specific and the macroeconomic variables on financial performance of DMBs in Nigeria, from 2003- 2023. The study employed the descriptive statistics and the Hildreth-Lu time series regression technique for the analysis of data. For the bank-specific variables, asset growth, leverage and asset quality were adopted, while interest rate, inflation rate, exchange rate, and economic growth were the macroeconomic variables used. Findings reveal that asset growth and inflation rate have insignificant effect; leverage and exchange rate have a negative but significant effect, while asset quality, interest rate, and economic growth tends to have a significant positive effect on the financial performance, measured by the net interest margin (NIM).  This study draws the conclusion that firms’ performance is highly contingent on both the factors specific to banks and the external macroeconomic variables, with the macroeconomic determinants having an edge over the former. Banks should take measures to manage the growth in total assets more economically, effectively, and efficiently, in order to generate additional earnings. Banks can advantage of the prevailing interest rate to generate more earnings through credit creation.