Microeconomic and Macroeconomic Determinants of Bank Profitability in Nigeria


Development of the banking sector and increasing importance of banks’ role in the economy has significantly led to an increase in bank-focused literature. To this end, this study investigated microeconomic (bank specific and industry-specific) and macroeconomic determinants of bank profitability in 16 Nigerian commercial banks for the period 2010 - 2014. Using the Pooled Ordinary Least Squares regression method, microeconomic factors (credit risk, capital adequacy, cost management efficiency, liquidity, size and market structure) and macroeconomic factors (gross domestic product and inflation) were regressed against two measures of bank profitability (net interest margin and return on average assets). The results indicated that size, cost management efficiency, bank liquidity and market structure are significant microeconomic determinants of Nigerian commercial banks’ profits while gross domestic product and inflation are the significant macroeconomic determinants with microeconomic factors having a higher explanatory power. Based on the findings, the study recommended that for Nigerian commercial banks’ earnings to improve, they should maintain a low cost profile, low liquidity level as well as growth in their operations. For policy makers and regulators in the industry, we recommended the sustainment of a low inflationary environment as well as growth in the economy for bank earnings to increase.



Commercial banks, macroeconomics, Nigeria, panel data, profitability