BANKS DIVERSIFICATION AND RETURN ON ASSETS OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Bank Diversification and return on assets of deposit money banks in Nigeria for the period 1990-2020 is the focus of this paper. Treasury bills, acquisition of ordinary shares, investments in subsidiaries, and foreign investments outside Nigeria were the explanatory variables and proxies for bank diversification while Return on assets is the dependent variable for all deposit money banks in Nigeria, for the periods under review. In the course of the study, data were obtained from the website of Central Bank of Nigeria Statistical bulletin and annual report of Nigerian Deposit Insurance Corporation (NDIC). The Augmented Dickey Fuller (ADF) test option was used to test for unit roots. The autoregressive distributed lag (ARDL) and Bounds test tools were also used to estimate the short and long run relationships respectively. The study discovered that at short run, ordinary shares, treasury bills, investments in subsidiaries were positively related, while foreign investments outside Nigeria was negative  but  not significant predictors of  return on assets of DMBs at most lag periods. Long run relationship was also observed to exist amid treasury bills, acquisition of ordinary shares, investment in subsidiaries, foreign investments outside Nigeria and return on assets of all deposit money banks in Nigeria for the period 1990- 2020. The study recommended that (1) DMBs should diversify into treasure bills and ordinary share capital in the short run as it would positively influence return on assets positively. (2) DMBs should increase their investments in subsidiaries in order to increase return on assets.