Financial Derivatives and Its Effects on Financial Performance of Deposit Money Banks in Nigeria

Abstract

This study examined the relationship between financial derivatives and financial performance of deposit money banks (DMBs) in Nigeria from the period of 2013 to 2022 (10years). Financial derivatives [proxied with Financial Liabilities Derivatives (FLD), Foreign Exchange Derivatives (FED), Trading Income on Derivatives (TID), Loan and Advance to Customers (LADC) and Bank Size (BS)] (independent variables) and financial performance [proxied with Return on Assets (ROA)]. The Ex-Post Facto research design was used. Ex-Post Facto research design aids in answering the who, what, when, where, and how questions linked with a certain study problem. The ex-post facto research design is used to acquire information on the current state of a phenomenon and to define ‘what exists' in terms of variables or conditions in a setting that is specifically relevant to the issue under investigation. Data on financial derivatives and financial performance were obtained from the annual reports and accounts of ten (10) DMBs listed in Nigeria Exchange Group that has international presence. The data set was described using descriptive statistics, followed by the correlation analysis was used to ascertain the co-movement of the independent variables in relation to the dependent variable and several diagnostics tests. Since the data are panel series that the unit root test was conducted to ascertain if the data are stationary in order to have accurate regression result followed by single equation co-integration test while the Multiple Regression analysis were employed with the aid of E-VIEW version 9.0 for the purpose of testing the research hypotheses raised in chapter one. It evident that measures of financial derivatives used has mixed effects on ROE of DMBs in Nigeria. However, majority of the independent variables such TID, LADC and BS has significant effects on ROE of DMBs while FLD and FED established an insignificant effects on ROE of DMBs in Nigeria. Hence, the study