Sectorial Allocation of Banks’ Assets and Profitability of Commercial Banking Sector in Nigeria

Abstract

This study examines sectorial allocation of banks’ assets and profitability of commercial banking sector in Nigeria. The study made use of return on assets (ROA) as proxy for dependent variable measuring profitability of commercial banks in Nigeria while banks assets allocations to Petroleum Sector, Breweries Sector, Conglomerates Sector, Agricultural Sector, Construction Sector and Fast Moving Consumer Goods Sector, was used in the study as independent variables. All data were obtained from Central Bank of Nigeria statistical bulletin and which span across 2008 to 2022. Data stationarity was ensured using the Augmented Dickey Fuller statistics, while the error correction model was applied to as the statistical tool for acceptance of hypothesis. The study also upholds the bank-based systems and that of the commercial bank theory. Sectorial allocation to the Petroleum Sector (PETR), Breweries Sector (BREW), Conglomerates Sector (CONG), Agricultural Sector (AGRIC), Construction Sector (CONS), Fast Moving Consumer Goods Sector (FMCG) is significant and positive and contributed positively to return on assets (ROA), government should ensure the proper financing and monitoring of these sectors. No causality between FCMG and PETR. PETR, BREW, CONG, AGRIC, CONS, FCMG granger cause ROA. There is a bi-directional relationship between PETR and ROA; BREW and ROA; CONG and ROA; AGRIC and ROA; CONS and ROA; and FMCG and ROA. The current risky business environment is affecting banks’ ability to lend to the Petroleum Sector (PETR), Breweries Sector (BREW), Conglomerates Sector (CONG), Agricultural Sector (AGRIC), Construction Sector (CONS), Fast Moving Consumer Goods Sector (FMCG). Commercial bank assets allocated to Fast Moving Consumer Goods (FMCG) and allocation of banks’ assets to conglomerate sector (CONG) exhibited a negative coefficients, thus suggesting reject the alternate hypothesis, and accept the null hypothesis which states that t here is no signi