Diversification and Financial Survival of Selected Deposit Money Banks in Nigeria

Abstract

A stable financial sector efficiently allocates resources, manage financial risks and supports productive sectors of the economy for growth and development. Despite the contribution of the financial sector to the growth of the economy, deposit money banks are faced with declining capital adequacy ratio, asset quality ratio, management capacity ratio, earnings ratio and liquidity ratio. Extant literature showed that full integration of diversification into the bank operation can ensure effective financial survival. Several studies had examined how diversification affect financial survival but a few focused on income, asset and fund as proxies of diversification. This study examined the effect of diversification on financial survival of selected deposit money banks in Nigeria.
The study adopted ex-post facto research design. The population of the study comprised all the 19 authorised deposit money banks by Central Bank of Nigeria as at December 2023. Purposive sampling technique was used to select a sample of 15 authorised deposit money banks with the relevant data extracted from audited annual reports and accounts of the sampled banks for a period of 16 years (2008-2023). Reliability of data was premised on the certification of regulatory authorities and auditors. Data were analysed using descriptive and inferential (multiple linear regression) statistics at 5% level of significance.
The result showed that diversification measures had joint significant effect on management capacity (Adj. R2 = 0.06, F (5, 234) = 28.71, p < 0.05), bank earnings (Adj. R2 = 0.03, F (5, 234) =4.17, p < 0.05 of selected deposit money banks in Nigeria.
The study concluded that diversification supports the financial survival of deposit money banks in Nigeria. The study recommended that the management of deposit money banks should strengthen the implementation of income, asset and fund diversification to drive financial survival.