Open AccessPortfolio Diversification and Performance of Deposit Money Banks: Analysing the Nigerian Banking Industry
Author(s) -
Ihejirika Peters Omeni,
Aderigha Ades George
Publication year - 2021
Publication title -
asian journal of economics, business and accounting
Language(s) - English
Resource type - Journals
ISSN - 2456-639X
DOI - 10.9734/ajeba/2021/v21i1530475
Subject(s) - treasury , diversification (marketing strategy) , subsidiary , return on assets , business , monetary economics , portfolio , return on equity , equity (law) , economics , financial system , finance , profitability index , archaeology , marketing , multinational corporation , political science , law , history
The focus is on Portfolio Diversification and Performance of Deposit Money Banks: analyzing the Nigerian banking industry for the period 1990-2019. The study measured treasury bills, ordinary shares, investments in subsidiaries, and foreign investments outside Nigeria as proxies for Portfolio Diversification while Return on Equity as proxy for performance of deposit money banks for the periods under review. In the course of the study, data were obtained from the website of Central Bank 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 ARDL and Bounds test were used to estimate the short and long run relationships respectively. The study discovered that at short run, treasury bills, and ordinary shares are negatively related and not significantly related to return on equity while investments in subsidiaries and foreign balances outside Nigeria are positively related to return on equity of DMBs at most lag periods. However, it was further observed that at different lag periods the variables do not significantly predict the direction of return on equity of DMBs. Long run relationship was also observed to exist amid treasury bills, acquisition of ordinary shares, investment in subsidiaries, ,foreign investments outside Nigeria and performance of all deposit money banks in Nigeria for the period 1990 – 2019.at short run, DMBs should diversify into investments in subsidiaries , as this would improve return on equity. Deposit Money Banks should also diversify into foreign holdings that would yield positive net present values. Deposit money Banks in Nigeria should diversify into foreign investments with the right mix that would increase performance. These were some of the recommendations proffered, to the Government, monetary authorities, Central Bank of Nigeria, researchers and Deposit Money Banks in Nigeria.