What Factors Drive the Microfinance Banks’ Profitability in Nigeria?

Abstract

Banks’ profitability is vital component of economic growth, its significance extends from’ sustainability of banks to macroeconomic stabilization. Thus, this study assessed the effect of banks’ specific factors and macroeconomic variables on the profitability of microfinance banks (MFBs) in Nigeria from 2012-2021. The purposive sampling technique was employed to select 15 licensed MFBs from the South West region of Nigeria. This study employed return on assets (ROA) as an indicator of profitability. Secondary data was elicited from annual published reports of the selected MFBs. Descriptive, regression and correlation techniques were used to analyse data. Findings revealed that MFBs age and size play major roles in the determination of the banks’ profitability; non-performing loans substantially influenced MFBs profitability though adversely. Liquidity rate exerted negligible but positive influence on MFBs profitability. Furthermore, gross domestic product and exchange rate influenced MFBs profitability considerably. In contrast, the Inflation and Interest rate had an adverse but noticeable effect on banks’ profitability. The results provide signifncant directions to banks as well as related policy-makers. Bank management should take cognizance of these salient factors and endeavor to the lower non-performing loans in order to enhance MFBs profitability.