BANKING SECTOR REFORM AND FINANCIAL PERFORMANCE OF
DEPOSIT MONEY BANKS IN NIGERIA

AKANI, Henry Waleru
Department of Banking and Finance
Rivers State University Port Harcourt, Nigeria
akani.waleru@ust.edu.ng
ABSTRACT
This study examined banking sector reforms (BSR) and financial performance of quoted deposit
money banks (DMBs) in Nigeria. Panel data obtained from 13 quoted DMBs were sourced from
annual reports and statement of account of the DMBs from 2010 to 2019. Financial performance was
modeled as the function of increased capital base, increase credit allocation, increase in deposit
mobilization and assets quality. Panel data methodology is employed while the fixed effects model
was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled
estimates were tested while the Hausman test was used to determine the best fit. After cross
examination, the Hausman test validated the fixed effect model. From the fixed effect model the study
found that 52.6% variation in financial performance (represented as return on equity) of quoted
DMBs could be traced to variation in BSR. The study found that deposit mobilization and capital
adequacy ratio have negative significant relationship with return on equity of DMBs. Credit
allocation has positive significant effect while assets quality has positive insignificant effect on return
on equity. The study concludes that BSR have significant effect on financial performance of DMBs in
Nigeria; and recommend that the Central Bank of Nigeria should increase the minimum capitalization
of banks in line with perceived volatility of the operating environment; and also increase its oversight
function on DMBs in the areas of credit allocation and deposit mobilization.
Keywords: Asset quality, banking sector reform, capital adequacy ratio, financial performance