The Impact of Portfolio Management on Banks Performance

Abstract

This study investigates the impact of portfolio management on the profitability of deposit money banks in Nigeria, with a specific focus on how key portfolio components influence financial performance measured by Return on Assets (ROA). Effective portfolio management is essential for banking institutions operating in volatile economic environments, as it determines their ability to balance risk and return while maintaining financial stability. The study adopts an ex post facto research design and relies on secondary data extracted from the audited annual reports of selected deposit money banks listed on the Nigerian Exchange Group. The sample comprises three major banks, namely Zenith Bank, Guaranty Trust Bank, and Access Bank, covering the period from 2017 to 2023. Portfolio management is proxied by investments in government securities, investment in subsidiaries, loans and advances, and dues from other financial institutions, while control variables include consumer price index and non-performing loans. Regression analysis is employed to examine the impact of portfolio management on bank profitability. The empirical findings reveal that investments in government securities and subsidiaries exert a positive and statistically significant effect on return on assets, indicating that well-managed low-risk and diversification-oriented investments enhance bank profitability. Conversely, loans and advances, non-performing loans, and inflation exhibit negative effects on profitability, highlighting the adverse role of credit risk and macroeconomic pressures. The study concludes that effective portfolio composition and prudent credit risk management are critical for improving bank performance. It recommends that deposit money banks strengthen portfolio diversification strategies, optimize investment in government securities and subsidiaries, and enhance credit risk management frameworks to sustain profitability and long-term financial stability.