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South Asian Research Journal of Business and Management (SARJBM)
Volume-2 | Issue-04
Original Research Article
Effect of Interest Rates on Deposit Money Banks’ Profitability in Nigeria
Ilugbemi, Albert O
Published : July 26, 2020
DOI : 10.36346/sarjbm.2020.v02i04.002
Abstract
This study examined the effect of interest rates on the profitability of Deposit Money Banks in Nigeria between 2004 and 2018. The time series data for this study were collected from the Central Bank of Nigeria Statistical Bulletin and the annual reports of Nigerian Deposit Insurance Corporation. The study employed inferential statistics by analyzing the collected data via ordinary least square multiple regression technique. The choice of this technique was sequel to the Augmented-Dickney-Fuller Unit Root test which confirmed the stationarity of the research variables at levels. Findings from this study revealed that all the explanatory variables i.e lending interest rate (LINT), monetary policy rate (MPR), treasury bill rate (TBR) and ratio of cash balance to total liabilities maintained positive but insignificant relationships with the Return on assets of Nigerian banks (ROA); also, the coefficient of determination (R2) of 0.32 indicated that about 32% of the variation in the profitability could be explained by the interest rate proxies. Based on these findings, it was concluded that lending interest rate was an insignificant determinant of Deposit Money Banks’ profitability in Nigeria and recommended that Banks must strike a good balance in their loans pricing and investment decisions as this will help them to cover cost associated with lending while maintaining good banking relationship with their customers.

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