Financial Innovation and Performance of Deposit Money Banks in Nigeria

Tolulope Sopelola A., Ariyibi Mayowa E. & James A. Obadeyi

Download article picture_as_pdf

Abstract

The intrinsic ability of deposit money banks to innovate has resulted in a threat to their performance and existence. Because failure to innovate will dampen patronage from depositors and investors, which in the long run will affect the internal profitability of the deposit money banks. This study investigated the effect of financial innovation and the performance of deposit money banks in Nigeria. The study employed time series data from 2012 to 2022 but was converted to quarterly data to accommodate the ordinary least squares condition, which gave forty-four-unit points before employing Auto-regressive distributed Lag Length (ARDL) to determine the short-run and long-run relationship between the outcome variable and explanatory variables. The findings were captured in the short run, based on the direction of the bound test that Automated teller machine and Mobile money payment had a positive significant effect on Loan-to-deposit ratio, whereas National Electronic Fund transfer and Point of Sale had a negative significant effect on Loan-to-deposit ratio. Based on the findings, it was recommended that deposit money banks should prioritise investment and promote Automated Teller Machines (ATM) and Mobile Money Payment platforms, as they positively and significantly impact the Loan-to-Deposit Ratio (LDR). These channels should be further developed to enhance their role in deposit mobilisation and loan expansion. Financial institutions should explore ways to make these platforms more efficient and supportive of the loan growth and liquidity management of the deposit money banks in Nigeria.

Authors

Read more