Effects of Global Decline in Oil Price on the Financial Performance of Selected Deposit Money Banks in Nigeria

Abstract

The global decline in oil price has had a significant effect on the Nigerian economy especially the banking sector and this has led to some banks; revenue shortfalls, increase in their non-performing loans, layoff of staff, decrease in the bank deposit base, deterioration of the bank's asset quality, and reduction in the volume of transactions etc. Therefore, the main objective of this research is to examine the effects of the global decline in oil price on the Nigerian banking sector. Descriptive statistics and Simple linear regression was used as a tool for data analysis which was run with a pool ordinary least square and the findings revealed that there exists a positive and significant relationship between oil prices and the financial performance (three key performance indices were used to measure performance such as; profit after tax, current ratio, and net interest margin) of the banks especially in the period characterized by the decline in oil price. This paper, therefore, recommends that the government should take proactive steps to revamp the Agricultural sector by empowering our local farmers while commercial farming should be encouraged. Banks should endeavor to imbibe diversification of their investments and engage in financial innovation in order to improve their performance so as to enable them to be competitive globally.

Oil Price Fluctuations and Exchange Rate in Selected Sub-Saharan Africa Countries: A Vector Error Correction Model Approach

“…For the oil-producing nations in sub-Saharan Africa economies known to be heavily dependent on oil export, this makes them more vulnerable to movements in oil prices at the global markets and the influence of other macroeconomic factors like the exchange rate. The study of Osuma et al (2019) corroborates with the above assertion owing to the contagion effects of the 2016 global drop in oil prices that adversely affected the Nigerian deposit money banks exposed to the oil and gas sector. Also, they documented that the decline in oil prices steered the negative GDP experienced in two consecutive quarters that made Nigeria be in a recessionary state in 2016.…”

Understanding the Factors of Financial Innovation in Industrial Revolution 4.0 Era

“…Financial innovation contributes significantly to bank financial performance (Chipeta & Muthinja, 2018;Osuma et al, 2019), providing opportunities for small companies to develop financial services without bank assistance with a faster process (Saksonova & Kuzmina-Merlino, 2017), financial innovation also has an impact on managing liquidity in banking (Roy et al, 2019), bank performance has increased after adopting electronic payment technology (Mustapha, 2018), financial innovation has also increased capital formation . Capital adequacy not only increases a bank's financial stability but also increases the bank's operational efficiency (Lotto, 2019).…”

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“…Finally, adequate capital levels form the benchmark for building confidence and trust among stakeholders. The banking sector is considered as the lifeblood of an economy as it helps in lubricating the payment and settlement activities within an economy as most deposit money banks prefer financing the top sectors within an economy to help improve their working capital position (Osuma, Babajide, Ikpefan, Nwuba, & Jegede, 2019).…”