THE EFFECTS OF OPERATIONAL RISK AND MARKET RISK ON THE PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA: A PANEL-ARDL ANALYSIS

Abstract

The study examined the effects of operational risk and market risk on the profitability of Deposit Money Banks in Nigeria. The broad objective of the study was to ascertain the effect of risk management components (operational risk and market risk) on the profitability of deposit money banks in Nigeria. The study is a longitudinal survey, so the ex-post facto research design was applied. Research data were analysed using A Panel-ARDL Analysis, after testing and adjusting the data for stationarity and Cointegration. The research findings were: in the long-run, the operating risk increase profitability because the banks have longer time to adjust and minimize the risk involved in their operation which resulted to a positive effect but have a shorter time in the short-run to adjust which resulted in a negative and decreasing effect in their profitability. Also, in the short-run, the increase in the market risk will significantly increase the profitability of the selected banks under study. But in the long-run the relationship is negative. The study contributed to knowledge by establishing that; the effects of operating risk and the market risk affect profitability of the deposit money banks in the long-run and the short-run differently.