BANK SPECIFIC FACTORS AND BANK PERFORMANCE: A STRUCTURAL EQUATION MODELING APPROACH

Abstract

Background: The Deposit Money banks determines the direction of growth and viability of the Nigerian economy, so their performance is an important component that is determined and affected by internal and external factors. Aims: This study examines the effect of bank-specific factors on the performance of deposit money banks, including return on average asset (ROAA), return on average equity (ROAE), Capitalisation ratio (CAR), Asset quality (AQ), Board size (BOS), and Bank Size (BS). Methods: The study employed the Structural Equation modelling technique on selected and listed deposit money banks in Nigeria. The convenience sampling technique informed the selection of ten deposit money banks that have continuous and active operations on the Nigerian Exchange Group. The secondary data was sourced from the audited financial statements from 2018 to 2024. Results: The findings reveal that bank size has a positive and significant effect on return on average assets and return on average equity, while capitalisation ratio has a negative and significant effect on return on assets. Conclusions: Deposit money banks in Nigeria should pursue strategies that encourage sustainable growth in size, such as mergers, acquisitions, and expansion into underserved markets, to leverage economies of scale and enhance both asset and equity returns. Implications: This implies that economies of scale, wider customer bases, and diversified operations enhance profitability in the Nigerian banking sector.