FINANCIAL INTERMEDIATION EFFICIENCY AND THE IMPACT OF PRIVATE SECTOR DEPOSITS ON BANK PROFITABILITY AND STABILITY IN NIGERIA

Abstract

The persistent volatility in private sector deposits has raised concerns about their impact on the profitability and stability of Deposit Money Banks (DMBs) in Nigeria. This study investigates the effect of demand deposits, savings deposits, and time deposits on bank profitability, proxied by Return on Assets (ROA), between 2015 and 2024. An ex post facto research design was adopted using secondary data sourced from the Central Bank of Nigeria (CBN), Nigerian Deposit Insurance Corporation (NDIC), and selected banks’ annual reports. Descriptive statistics, correlation analysis, diagnostic tests, and panel regression techniques were applied to validate and estimate the model. The regression results revealed that demand deposits negatively and significantly influence profitability (? = –0.081, p = 0.009), while savings deposits (? = 0.116, p = 0.007) and time deposits (? = 0.097, p = 0.012) positively and significantly affect profitability. The model recorded a strong explanatory power with R² = 0.731, indicating that 73% of variations in profitability are explained by the deposit structure. The study concludes that the composition and management of private sector deposits significantly determine the financial performance of Nigerian DMBs. It recommends prudent liquidity management for demand deposits, expanded digital savings mobilization strategies, and incentivized policies to promote long-term time deposits, thereby enhancing financial intermediation efficiency and sustainable profitability.