CAPITAL STRUCTURE AND PROFITABILITY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Bank management and providers of funds are of the view that capital structure is of supreme importance, the use of a wrong mix of capital structure could seriously affect the performance and subsistence of such a bank. Consequently, this research examines the impact of capital structure on the net interest margin of deposit money banks in Nigeria. Panel data analysis was employed, analysing the fixed effect and random effect models. The population of the study is 14 listed banks at the NSE. The sample is the six systemically important banks in Nigeria and covered the period of 2012 to 2020. Findings shows that Long Term Debt to Total Asset and Total Debt to Total Asset are statistically significant determinants of the net interest margin in Nigerian deposit money banks while Total Equity to Total Asset, Total Asset, Risk and Income Tax Expenses to Earnings before Taxes are not statistically significant determinant deposit money banks’ net interest margin in Nigeria. Therefore, it is concluded that the net interest margin of deposit money banks in Nigeria is statistically significantly determined by long term debt and equity. As such, the study recommended that deposit money banks in Nigeria should take into cognizance, the leverage level incurred in the capital structure as it significantly determines bank’s net interest margin.