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Effect of interbank deposit funding on the financial performance of deposit money banks in Nigeria

Author

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  • Akande Folorunso Ilesanmi
  • Akande Comfort Omowunmi
  • Ogbebor Peter Ifeanyi

Abstract

Failures of banking institutions have been an ongoing concern in the international banking system often leading to large economic downturns. It is concerning how quickly banks might experience liquidity crises especially when monetary policy is loose and credit is liberal. The speed at which companies experience downturns is worrying although bank failures are not a novel occurrence. Therefore, this study examined how interbank deposit funding influences the financial performance of Deposit Money Banks (DMBs) in Nigeria using dynamic panel analysis of fully modified ordinary least square from 2011-2021. Ten deposit money banks were used. The results indicate that IBR does not have a significant impact on ROE suggesting that the source of funding through interbank deposits does not significantly influence the profitability of DMBs in Nigeria. However, other factors such as Capital Adequacy Ratio (CAR), Gross Domestic Product (GDP), and Firms Age (FAG) have significant effects on ROE. The study highlights the importance of considering multiple factors beyond just funding sources when assessing the financial performance of banks in Nigeria. The study recommended that DMBs should diversify their funding sources. This can include increasing efforts to attract customer deposits, exploring alternative funding mechanisms and reducing reliance on interbank deposits. Diversification can help mitigate funding risks and enhance profitability.

Suggested Citation

  • Akande Folorunso Ilesanmi & Akande Comfort Omowunmi & Ogbebor Peter Ifeanyi, 2025. "Effect of interbank deposit funding on the financial performance of deposit money banks in Nigeria," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 21(1), pages 102-111.
    • Handle: RePEc:oap:ijaefa:v:21:y:2025:i:1:p:102-111:id:2092
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