Market Risks and Profitability of Deposit Money Banks in Nigeria

Abstract

The banking sector plays a pivotal role in the financial market; however, banks’ business transactions contribute to changes in the prices of assets. Without adequate strategies by the banks to mitigate and manage their exposures to these risks, their returns may be negatively affected. This work, therefore, examined, within the cohort and semi-experimental research design framework, the effects of market risks on a bank’s profitability using a sample of four banks selected through a purposive sampling technique. The co-integration and panel multiple regression analyses conducted showed that management of market risks had long-run effects on the profitability of DMBs in Nigeria. The interest rate had positive effects on bank profitability, while exchange rate and commodity prices reduced performance. The study recommended that banks manage their operations in a way that optimizes their earnings and profits in order to mitigate the risks of loss occasioned by exchange rate dynamics in Nigeria. Also, DMBs should revitalize their interest rate risk management strategies to further boost their earnings through interest income.