Pages: (79-103 )
Abstract
The principal activity of deposit money banks is financial intermediation, the process through which they earn income, deepen the financial system and spur economic growth in line with Schumpeter (1911)'s theory of economic development. The focus of this study is to examine the effect of financial deepening on the performance of listed deposit money banks in Nigeria for the period: 1993 – 2018. Using a battery of econometric tests involving descriptive statistics and panel regression tests [the pooled ordinary least squares (OLS), random and fixed effect estimators) to test the effect of financial deepening (dependent variables: ratio of individual banks' credit to the private sector to total assets, ratio of deposit liabilities to total assets and bank size) on profitability (independent variables: profitability, Net Interest Margin, return on equity and return on assets) of fifteen (15) deposit money banks listed in Nigeria. Mixed results which showed that financial intermediation has significant but joint effects on the performance indicators of deposit money banks listed in Nigeria were obtained. Recommendations include formulation of better and market focused credit policy, institution of mechanisms to better explore other income sources such as net interest margin, improve on the quality of their risk assets and spread between interest rates earned and cost of funds. Policy rethink on the part of government especially monetary authorities was also recommended.
Keywords: Deposit money banks, Economic development, Financial deepening, Performance, Supply leading hypothesis,