MODERATING ROLE OF LOAN LOSS PROVISION ON THE RELATIONSHIP BETWEEN RISK FACTORS AND THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA
MODERATING ROLE OF LOAN LOSS PROVISION ON THE RELATIONSHIP BETWEEN RISK FACTORS AND THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA
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Date
2021-11
Authors
LAWAL, Muhammad Kabir
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Abstract
Risks irrespective of its kind pose a serious threat to the banking business. The problem is
more pronounced among commercial banks because it encompasses deposits and asset linked
products as well as other financial services offered to numerous personal banking customers
and small business men. Inconsistent findings of risk factors linking financial performance of
commercial banks prompted the introduction of loan loss provision as a moderator variable.
The basic objective of this study is to examine the moderating role of loan loss provision on
the relationship between risk factors and financial performance of commercial banks (CBs)
in Nigeria for a period ranging from 2007 - 2018. The population of the study is fifteen (15)
listed commercial banks in the Nigeria Stock Exchange as at 31sl December 2018. The study
used a sample of twelve (12) listed commercial banks in the Nigerian Stock Exchange. The
independent variables are risk factors such as Capital Adequacy Risk, Liquidity Risk,
Solvency Risk, Market Risk, and Operational Risk which is moderated by Loan Loss
Provision (LLP). The dependent variable is financial performance as a measure of
profitability using accounting ratio of ROE. In achieving this objective, the study used Panel
Corrected Standard Errors (PCSE) model, this is used due to the presence of
heteroscedasticity in the model where fixed effect is chosen using Hausman test based on the
multiple regression technique where test of hypothesis is conducted and the study draw
conclusions based on the findings of the study. The results of regression output shows that
capital adequacy risk, solvency risk and operational risk have significant effect on ROE.
While liquidity risk and market risk have insignificant effect on ROE. From the result loan
loss provision has moderating role on the relationship between capital adequacy risk,
solvency risk, operational risk and ROE. The study concludes that loan loss provision has no
moderating role on the relationship between liquidity risk and market risk and financial
performance of commercial banks in Nigeria. The study recommends that CBs should evolve
policy measures aimed at optimizing their funding requirements under various financial
stress conditions. These policy measures can be employed as road map for banks to meet
their funding requirement in long term and short term.
Description
A Ph.D. THESIS SUBMITTED TO THE SCHOOL OF POSTGRADUATE
STUDIES, AHMADU BELLO UNIVERSITY, ZARIA, IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD OF DOCTORATE DEGREE IN
BUSINESS ADMINISTRATION
DEPARTMENT OF BUSINESS ADMINISTRATION
ABU BUSINESS SCHOOL,
AHMADU BELLO UNIVERSITY,
ZARIA