Does Financial Inclusion Moderate Effects of CAMELS Financial Indicators on Financial Performance of Domestic Systemically Important Banks in Nigeria. Evidence from PLS-SEM.

Abstract

The surge of global financial crisis mostly caused by the failure of giant banks, which are commonly known as systemically important banks, spark the interest on studying the factors affecting the financial performance of such giant banks. This paper assesses the moderating effect of financial inclusion on the effects of CAMELS financial indicators on financial performance of domestic systemically important banks (DSIBs) in Nigeria. CAMELS is an acronym denoting capital adequacy, assets quality, management efficiency, earnings quality, liquidity and sensitivity to market risk. The paper used correlational research design to assess the relationship between the variables. Population of the study comprises all the five DSIBs in Nigeria as of 2023 which are; Access Bank, FirstBank, GT Bank, UBA and Zenith Bank. Census sampling technique was used to select all the five DSIBs. Financial reports between 2005 and 2023 of these five banks were used to extracts data on financial ratios based on the CAMELS parameters. Each of the CAMELS parameter was measured by three financial ratios while financial inclusion was measured by five proxies; branches, POS, ATM, BVN/Account No. and ATM/100000 adults. DSIBs financial performance was measured by return on assets, return on equity and return on capital employed. Pooled least square structural equation modelling (PLS-SEM) was used to analyzed the data and SmartPLS-4 software was used to run the analysis. The study found that capital adequacy, earnings quality, liquidity, sensitivity to market risk and financial inclusion significantly impacted on the DSIBs financial performance while assets quality and management efficiency were found to have insignificant effects on the DSIBs financial performance. Moderating effect of financial inclusion on the effects of CAMELS financial indicators on the financial performance of DSIBs in Nigeria was found to be insignificant. The paper recommends expansion in the level of financial inclusion in Nigeria by opening more bank branches, ATM and POS outlets especially in the underserved communities for better financial services delivery and increased financial performance of DSIBs.