Financial System Development And The Performance Of Banking Sector In Nigeria
Dr. OMOREGIE, Charity Lucky
Department of Economics, Banking and Finance, Benson Idahosa University Benin City.
ASEMOTA, Georgina Okpoa
Department of Economics, Banking and Finance, Benson Idahosa University Benin City.
Abstract
The study empirically examines the short-run and long-run relationships between financial system development and banking sector performance in Nigeria for the period 1995-2021. Return on asset (ROA) and return on equity (ROE) were employed as measures for banking sector performance. Multivariate OLS analysis was employed in the study for the assessment process, co-integration analysis for long-run equilibrium relationship and the error correction mechanism to measure the short-run influence of the determining factors (MCAP, STV, STO, CPS, M2, IRS and INFR). The findings revealed that financial system development positively impact the performance of banking sector in Nigeria. However, the empirical findings based on ROA model performed better than that of the ROE model when the focus is to measure return to all stakeholders. We therefore recommend that the current reforms in the money market as well as capital market should be deepened so as to enhance the development of these segments of the financial system and by that intensify their role in banking sector performance. Similarly, the regulation as well as supervision of the financial system should be strengthened as it plays a fundamental role in ensuring appropriate utilization of loans on the right assets yielding investments that will in turn impact positively on the performance of the banking sector.