Earnings and bank profitability in Nigeria

John N N Ugoani

doi:10.14807/ijmp.v7i4.426

Abstract

Bank earnings in form of retained profit help in the capital formation of banks. This is critical because capital inadequacy is often a cause of bank failures. During the banking crisis in Nigeria the gross earnings of many banks diminished considerably due to frauds and bad management. For example, in 2009 the Central Bank of Nigeria revoked the operating licences of fourteen banks which had huge nonperforming loans and were making losses. The fragility in the Nigerian banking system in the 1990s and beyond was compounded due to wide spread poor corporate governance practices and imprudent lending that led to the erosion of gross earnings and profitability. The study employed the exploratory research design. Data analyses were done through description statistics and the regression technique using the statistical package for the social sciences. The regression result was Y = 4.926 + 1.877x meaning that with an increase of 1 percent in gross earnings bank profitability increases by 1.88 percent. This is the crux of the study.

Highlights

Earnings by a bank indicate the extent to which management is putting its assets into productive use, some nonproductive use is normal because while plant and equipment may not directly generate income, they are necessary to support the operations of the bank
Bank earnings are important for bank profitability
Gross earnings are used in managing capital inadequacy to increase the level of profit retention of a bank

Summary

Introduction

Earnings by a bank indicate the extent to which management is putting its assets into productive use, some nonproductive use is normal because while plant and equipment may not directly generate income, they are necessary to support the operations of the bank. What is critical here is that a bank must ensure cost efficiency of running plant and equipment. The reality is that a bank with a core earnings performance significantly below the average for its peer group is very unlikely to have the capacity to compete effectively in the market place. Without such efficiency on the part of management, a bank may not be profitable, and may witness a serious drain on its earnings, and may even fail. It requires sound management to ensure that the optimum degree of expenditure is made that reflects the efficiency and quality of earnings

Methods

Discussion

Conclusion