Abstract
This study examined the effect of cash flow which include operating, investing and financing on Net Interest Margin, seen as performance of listed deposit money banks in Nigeria. Data for the study were collected from the annual reports of the banks used as an adjusted population due to criteria set for the study for the period 2008 to 2018. The study utilised panel regression analysis where panel corrected standard error model was employed due to the presence of heteroscedasticity in the model in relation to Net Interest Margin NIM seen as performance model. The study found that both operating and financing cash flows have positive and significant effect on Net Interest Margin NIM among the banks in Nigeria. However, the study could not establish any relationship between investing cash flow and Net Interest Margin NIM of banks in Nigeria. Therefore, it is recommended that more attention be paid to both operating and financing cash flows as it influences the Net Interest Margin NIM which could lead to more Net Interest Margin of listed deposit money banks in Nigeria positively. Keywords: Cash Flow, Financing, Investing, Operating, Net Interest Margin DOI: 10.7176/RJFA/12-10-06 Publication date: May 31 st 2021
Highlights
Despite some measures put in place by Central Bank of Nigeria (CBN), many banks have collapsed in Nigeria since the advent of banking and financial institutions, and the instability and systemic failures that we have seen in the Nigerian banking sector over the last 15 years can be directly related to poor Net Interest Margin of banks, and while regulatory measures have been in place to partially resolve the poor performance which could be seen as Net Interest Margin issues in the banking sector, the inadequate funds which could result to cash flows could be responsible to this ugly incidence
Cash flows compose of operating cash flow OPCF and financing cash flow FICF improve Net Interest Margin with the exception of investing cash flow INCF among deposit money banks in Nigeria
This is in line with pecking order theory which prevails the more the cash flows the better the performance seen as Net Interest Margin in general and the more the performance (Net Interest Margin) the more the stakeholders’ satisfaction on the operation of the banks
Summary
Despite some measures put in place by Central Bank of Nigeria (CBN), many banks have collapsed in Nigeria since the advent of banking and financial institutions, and the instability and systemic failures that we have seen in the Nigerian banking sector over the last 15 years can be directly related to poor Net Interest Margin of banks, and while regulatory measures have been in place to partially resolve the poor performance which could be seen as Net Interest Margin issues in the banking sector, the inadequate funds which could result to cash flows could be responsible to this ugly incidence. One of the triggers of Net Interest Margin is cash flow which reflects the actual liquid position of any organization and explains the ability of a firm to meet its maturing short term obligations as they fall due. A healthy cash flow position results in liquidity of a bank which helps it sustain and boost its operations thereby increasing the Net Interest Margin and enhancing prudent re-investment of the profits which results in the growth of the bank (Onyekwelu, Chukwuani, & Onyeka, 2018). Cash flow statements are one of the most important elements of the financial statement because of their seemingly peculiar nature
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