Regulation, Financial Development, Financial Soundness and Banks Performance in Nigeria

Abstract

This study empirically examines the impact of regulation, financial Development and financial soundness on bank performance in Nigeria for the period 1985-2015. The study uses two regulatory indicators (cash reserve ratio and monetary policy rate) as measures of regulation; the ratio of broad money supply to Gross Domestic Product (M2/GDP) for financial development; bank non-performing loans to total gross loans for financial soundness while bank performance was proxy by earnings of bank after tax. It adopted a multivariate OLS analysis for the estimation process, co-integration analysis for long-run equilibrium relationship and the associated error correction model to determine the short-run impact of the variables. The findings of the study are that cash reserve ratio, monetary policy rate, financial developments and financial soundness largely impact on bank performance both in the short run and long-run. It is recommends that regulation and supervision of banks should be strengthened in other to improve the performance of banks in Nigeria. Also, we recommend that the ongoing reforms in the banking system should be intensified so as to ensure safe, sound and stable banking system that is a sine qua non for long run financial performance of banks in Nigeria.