Market Risks Management and Performance of Deposit Money Banks in Nigeria: The Challenges of 4<sup>th</sup> Industrial Revolution

Abstract

This study examined the effect of market risks on performance of 15 banks in Nigeria spanning from 2011 to 2020. The study relied on secondary data derived from the selected banks’ financial statements to determine and measure the effect of fluctuations in market risks on Nigerian banks performance in this era of 4th industrial revolution by applying an all-inclusive panel least square estimate. The study used the ex-post facto research design. The data were obtained from annual reports of the 15 sampled banks. Accordingly, four (4) specific objectives and hypotheses were stated and the data obtained were subjected to some preliminary tests such as descriptive, correlation analysis and variance inflation factor. The hypotheses were tested and analyzed using panel least square estimate. The empirical analysis covered 150 bank-year observations and the results shows that interest rate risk (IRSK), foreign exchange rate risk (FXRSK) and capital adequacy risk (CARSK) have negative yet noticeable effect on the Nigerian banks’ performance while equity risk (EQRSK) have positive yet minimal effects on Nigerian banks’ performance on the short run. Meanwhile, on the Kao Cointegration test evidenced that, market risk has a long run effect on banks’ performance in Nigeria. Consequently, market risk measured by IRSK, FXRSK, and CASK decreases the likelihood for Nigerian banks to make huge profit to a very large extent in the periods under review. As such, if Nigerian banks desire higher income especially in this era of 4th industrial revolution, they need to optimally manage their market risks.