Driving Stability and Returns: An Empirical Analysis of Financial Soundness and Profitability in Nigeria’s Listed Commercial Banks
Résumé
This study investigates the impact of financial soundness on the profitability of listed commercial banks in Nigeria, with a focus on the determinants of return on assets (ROA).Specifically, the influence of capital adequacy ratio (CAR), operational efficiency (OPE), and non-performing loan ratio (NPLR) on bank profitability was assessed.Additionally, the moderating effect of OPE on the relationship between capital adequacy and ROA was examined.An ex-post facto research design was adopted, utilising secondary data spanning a ten-year period from 2014 to 2023.Data were extracted from the annual reports of the sampled banks and subjected to rigorous descriptive and inferential analyses.Measures of central tendency and dispersion were employed to summarise the data, while hypotheses were tested using ordinary least squares (OLS) regression analysis.The results indicate that CAR exerts a significant positive effect on ROA, suggesting that banks with robust capital buffers are better positioned to absorb financial shocks and sustain income-generating activities.Conversely, OPE was found to have a significant negative effect on ROA, implying that efficiency gains may not automatically translate into higher profitability in the context of Nigerian commercial banks.Similarly, the NPLR exhibited a significant negative relationship with ROA, highlighting the detrimental effect of asset quality deterioration on profitability.The interaction between capital adequacy and OPE was also observed to negatively affect ROA, indicating that excessive OPE without commensurate capital support may undermine profitability.These findings underscore the necessity of a balanced approach to financial soundness, where adequate capitalisation is maintained alongside prudent operational management.It is therefore recommended that management of Nigerian commercial banks maintain capital levels above regulatory minima to reinforce resilience and income-generating capacity, while strategically enhancing OPE to optimise profitability.The study contributes to the literature by providing empirical evidence on the complex interplay between financial soundness indicators and bank profitability, offering actionable insights for policymakers, regulators, and banking executives seeking to strengthen the stability and performance of the sector.
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