AKANI, Elfreda N.
Department of Banking and Finance
Faculty of Management Sciences
Rivers State University
ORDU, Chile Nmezuruike
Department of Accountancy
Faculty of Management Sciences
Rivers State University
ABSTRACT
This study examined effects of financial conditions on return on equity (ROE) of deposit money banks in Nigeria. The study employed private sector credit, net foreign assets, net domestic credit, broad money supply and monetary policy as indices of financial condition. The population of the study comprised 13 deposit money banks listed on the Nigerian Stock exchange. The study relied on secondary data sourced from Central Bank of Nigeria (CBN) annual reports and statistical bulletins and economic Journals covering the period of 2011-2020.
The study used multiple regression models to examine the effect of indices of financial conditions on ROE. After cross sectional validity of the model, the results obtained validate the use of fixed effect model. The Durbin Watson statistic of the variable showed coefficients greater than the upper band which proves the absence of negative serial autocorrelation. The fixed effect results of the study shows that 66.3% variation in ROE of deposit money banks can be explained by financial conditions. The regression coefficient showed that private sector credit, net foreign assets, net domestic credit and monetary policy rate have negative insignificant effect on ROE while net domestic credit and broad money supply have positive insignificant effect on ROE. The study concludes that financial conditions have effect on ROE of deposit money banks; and recommends that management of deposit money banks should increase net domestic credit and formulate policies aimed at managing their operating environments to avert negative effects of net domestic credit on their ROE.
Keywords: Credit to private sector, deposit money banks, financial conditions, net foreign
assets, return on equity