Working capital management and bank performance: empirical research of ten deposit money banks in Nigeria
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Working capital management is germane for the success of the banking industry in
Nigeria, especially the current state of the sector, which is engulfed with the effect of
the global decline in oil price that has resulted in non-performing loans, deterioration
of the bank asset quality, laying-off of staff amongst others. This is one of the reasons
why the profitability of the banking sector deeply depends on the efficient management
of a bank’s working capital. Therefore, the objective of this study is to examine
how profitability of banks can be enhanced through the working capital management.
To empirically carry out the analysis, panel data which consist of ten (10) deposit
money banks in Nigeria for seven years (2010–2016) employing the panel fixed effect,
panel random effect and the pooled OLS for the two models, which were used as proxies
for bank profitability, which includes return on asset (ROA) and return on equity
(ROE) to examine the best measure for bank profitability, with the indicators of working
capital; net interest income, current ratio, profit after tax, and monetary policy
rate. Results of the study showed that working capital management has a significant
effect on the profitability of the selected banks and that return on asset is a better
measure for bank profitability. Therefore, the study recommends that there should be
a periodic review of the minimum capital base of the Nigerian deposit money banks
so as to mitigate the effects of inflation and inculcate the consequence of time value
of money, because the purchasing power of one (₦1) naira or one ($1) dollar today
would not be sufficient to purchase what it can purchase today for tomorrow
Keywords
HB Economic Theory, HG Finance