Financial Assets and Bank Performance in Nigeria

Abstract

This study investigates the impact of financial assets management on the performance of Deposit Money Banks (DMBs) in Nigeria over a 25-year period (1999–2023), focusing on key components of financial assets—Cash Equivalents (CE), Trade Receivables (TR), and Loans and Advances (LAD)—as independent variables, and Return on Assets (ROA) as the dependent variable. The study also integrates macroeconomic indicators, including inflation rate, interest rate, and GDP growth rate, as control variables to account for broader economic dynamics. Employing a quantitative research approach, the study utilizes Ordinary Least Squares (OLS) regression analysis within an ex-post facto research design. Data were sourced from CBN statistical bulletins, DMBs’ financial reports, World Bank indicators, and the Nigerian Stock Exchange (NSE). The results reveal that CE, TR, and LAD significantly and positively influence ROA, suggesting that effective financial asset management enhances bank profitability. In contrast, inflation shows an insignificant effect on ROA, while interest rate has a negative and statistically significant impact. GDP growth rate, however, exerts a positive and significant influence on bank performance. The model demonstrates strong explanatory power with an R-squared value of 0.9316, supported by diagnostic tests confirming its reliability. These findings offer practical insights into liquidity and credit management strategies for banking institutions and underscore the importance of macroeconomic stability for financial sector performance. The study contributes to the growing body of knowledge on bank asset management in developing economies and offers evidence-based recommendations for policy formulation and banking regulation.