IMPACT OF INTEREST RATE MARGINS AND RISK MANAGEMENT ON COMMERCIAL BANK PERFORMANCE
Abstract
From the Nigerian perspective, the issue of financial risks in deposit money banks is quite complex
and unresolved. Based on this, study examined the impact of interest rate spread and financial risk
on the performance of deposit money banks in Nigeria. The specific objectives were to analyze the
relationship between interest rate spread and the profitability of deposit money banks, to
investigate the effect of financial risk on the performance of deposit money banks, to assess the
combined impact of interest rate spread and financial risk on the performance of deposit money
banks and to provide recommendations for improving the management of interest rate spread and
financial risk in deposit money banks. The study however adopted an ex-post facto research design
and utilized a panel data of one hundred and forty (140) pooled observations gathered from
fourteen (14) deposit money banks in Nigeria over ten (10)-years period (2014-2023). The study
employed a panel multiple regression technique to analyze data via E-views 10.0 statistical
package. The study findings revealed that interest rate spread has a significant positive
relationship (Coeff. = 0.1164{0.0082}) with financial performance of deposit money banks in
Nigerian, credit risk has a significant negative relationship (Coeff. = -0.2615{0.0046}) with
financial performance of deposit money banks in Nigeria while market risk has a significant
negative relationship (Coeff. = -0.0126{0.0124}) with financial performance of deposit money
banks in Nigeria. It also revealed that operational risk has an insignificant negative relationship
(Coeff. = -0.0034{0.2851}) with financial performance of deposit money banks in Nigeria. It was
thus interest rate spread and financial risk have significant impact on the financial performance
of deposit money banks in Nigeria, hence, deposit money banks are recommended to develop
targeted strategies to enhance financial performance, manage risk, and maintain stability in the Face of evolving economic conditions.
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