Journal of Finance and Accounting
ISSN (Print): 2333-8849 ISSN (Online): 2333-8857 Website: http://www.sciepub.com/journal/jfa Editor-in-chief: Apply for this position
Open Access
Journal Browser
Go
Journal of Finance and Accounting. 2017, 5(3), 88-92
DOI: 10.12691/jfa-5-3-3
Open AccessArticle

Regulation, Financial Development, Financial Soundness and Banks Performance in Nigeria

Florence Modupe Fapohunda1, and Emmanuel Eragbhe2

1Department of Accounting and Finance, Faculty of Social and Management Sciences, Elizade University, Ilara- Mokin, Ondo State, Nigeria

2Department of Accounting, Faculty of Management Sciences, University of Benin, Benin City, Nigeria

Pub. Date: October 23, 2017

Cite this paper:
Florence Modupe Fapohunda and Emmanuel Eragbhe. Regulation, Financial Development, Financial Soundness and Banks Performance in Nigeria. Journal of Finance and Accounting. 2017; 5(3):88-92. doi: 10.12691/jfa-5-3-3

Abstract

This study empirically examines the impact of regulation, financial Development and financial soundness on bank performance in Nigeria for the period 1985-2015. The study uses two regulatory indicators (cash reserve ratio and monetary policy rate) as measures of regulation; the ratio of broad money supply to Gross Domestic Product (M2/GDP) for financial development; bank non-performing loans to total gross loans for financial soundness while bank performance was proxy by earnings of bank after tax. It adopted a multivariate OLS analysis for the estimation process, co-integration analysis for long-run equilibrium relationship and the associated error correction model to determine the short-run impact of the variables. The findings of the study are that cash reserve ratio, monetary policy rate, financial developments and financial soundness largely impact on bank performance both in the short run and long-run. It is recommends that regulation and supervision of banks should be strengthened in other to improve the performance of banks in Nigeria. Also, we recommend that the ongoing reforms in the banking system should be intensified so as to ensure safe, sound and stable banking system that is a sine qua non for long run financial performance of banks in Nigeria.

Keywords:
regulation financial development financial soundness performance

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Llewellyn, D.T. (1986). The regulation and supervision of financial institutions. The Institute of Bankers, London.
 
[2]  Asemota, A. (2003). Bank management, (2nd ed.), Benin City, Imprint Services Publisher.
 
[3]  Iyade, A. I. (2006). The impact of regulation and supervision on the activities of banks in Nigeria (an assessment of the role of the CBN and NDIC). Thesis submitted to st.clements university in partial fulfilment of the requirements for the award of Ph.d in financial management.
 
[4]  Berger, A.N. (1995). The relationship between capital and earnings. Journal of Money, credit and Banking, 27(6), 432-456.
 
[5]  Barth, J.R., Caprio, G., & Levine, R. (2004). Bank regulation and supervision: what works best? Journal of Financial Intermediation, 13, 205-248.
 
[6]  Osayande, D. E., & Imafidon, S. (2013). Regulation, financial soundness indicators and bank performance: the case of Nigeria.Central Bank of Nigeria Bullion Publication, 39(4), 3-14, October- December.
 
[7]  Asian Development Bank Annual Report (2015).
 
[8]  Diamond, D.V. & Dybvig, P. (1983). Bank runs, deposit insurance, and liquidity, Journal of Political Economy, 91, 401-419.
 
[9]  Jansen, T. & Micheal, W. (1994). Financial regulations and its significance for microfinance in the Latin America and The Caribbean.
 
[10]  Edwards, J.K. (1997). Ethical foundations of financial regulations’, working paper, No.1620.
 
[11]  Kremmling, M.D. (2011). The influence of financial sector regulation on bank performance: a study of bank performance during the world financial crisis. Being published Dissertation written and submitted in the University of Cyprus.
 
[12]  Babihuga, R., (2007). Macroeconomic and financial soundness indicators: An empirical investigation”, IMF Working Paper, WP/07/115.
 
[13]  Cihak, M. & Schaeck, K (2010). How well do aggregate prudential ratios identify banking system problems?. Journal of Financial Stability, 6, 130-44.
 
[14]  Berger, A.N. & De Young, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance, 21(6), 849-870.
 
[15]  Gordon, R. J. (2005). What is New-Keynesian Economics? Journal of Economic Literature, 28(3), 1115-1171.