ASSET AND LIABILITY MANAGEMENT AND PROFITABILITY OFDEPOSIT MONEY BANKS: COUNTRY-LEVEL CROSS-SECTIONALEVIDENCE FROM NIGERIA


OYETAYO Oluwatosin Juliana
Department of Banking and Finance
Federal University of Agriculture Abeokuta
oyetayooj@funaab.edu.ng
KAJOLA Sunday Olugboyega
Department of Accounting
Federal University of Agriculture Abeokuta
kajolaso@funaab.edu.ng
AGBATOGUN Taofeek Oshindero
Department of Banking and Finance
Ogun State University Ago Iwoye
agbatogunto@funaab.edu.ng
OWORU Oluwafemi Olympus
Department of Accounting
Federal University of Agriculture Abeokuta
oworuoo@funaab.edu.ng, +234-8034836504

ABSTRACT
Asset and Liability Management (ALM) is practiced by banks and other financial institutions to mitigate financial risks resulting from a mismatch of assets and liabilities. Effective management of asset and liability items on the balance sheet is what generates revenue, expenses, and ultimately, profits for banks. This study tested the statistical cost accounting (SCA) model on profitability of banks in Nigeria. Against common practices in previous studies in Nigeria, net interest income (NII) and net income (NI) are adopted as proxies for profitability, while return on asset is generated to reflect the earning power of banks upon which ranking into high and low profit is based. A panel dataset of 10 banks from 2010-2022 was developed based on a dynamic SCA model estimated under the GMM framework. Three scenarios of all banks, high-profit and low-profit banks are created for the purpose of analysis. The fundamental hypothesis of SCA model was tested under each scenario generated. Findings reveal, for all banks, ALM affects net income more. Low-profit banks are not employing ALM strategies that help to boost their core area of operation. The net interest income of both high-profit and low-profit banks is highly dependent on the previous year’s net interest income. The study recommends that banks should improve on their interest-generating assets (loans and advances) in order to boost net interest income. They should also improve non-interest generating income like fees and commission, in order to safeguard net income.


Keywords: Asset and liability management, profitability, statistical cost accounting, net interest income

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