THE EFFECT OF FINANCIAL CRISIS ON PROFITABILITY OF NIGERIAN BANKS

Abstract

This paper empirically examined the distinct effect of the financial crisis on profitability in the Nigerian banking industry between 2008 and 2019 using firm-level data of 14 out of 18 Nigerian commercial banks listed on the Nigerian stock exchange. Using the system generalized method of moments (SGMM), the results showed that financial crisis harms bank profitability in Nigeria. Following these findings, it was recommended that the Central Bank of Nigeria should formulate policies such as bail-out, extension of loan repayment, reduction of mandatory Central Bank deposit rate and engaging in open market policy to improve bank profitability and discourage banks in taking risky projects that could increase fragility in the banking industry. These policies will enable banks to reduce financial stress during crisis and mitigate the probability of engaging in highly risky projects which may further increase nonperforming loans and fragility in the banking industry.