BANKS DEPOSIT MIX AND FINANCIAL SUSTAINABILITY OF NIGERIAN BANKING INSTITUTIONS: A PRE AND POST GLOBAL FINANCIAL CRISES OUTLOOK
Abstract
Bank deposit mix is instrumental in the determination of bank profitability, size, and financial sustainability as a result deposits play a requisite role in the achievement of bank profitability objectives through her financial intermediation role. This paper empirically examined the comparison of bank deposits mix and its effect on bank financial sustainability in Nigeria. Secondary data obtained from CBN, 2018 was used to estimate the model based on the unit root test and vector autoregressive model using E-Views version 9.0. The result confirms that Time Deposit Rate impacted negatively on Loan to Deposit Rate, Inflation Rate, and Interest Rate Spread. Demand Deposit Rate affects Loan to Deposit Rate and Inflation Rate negatively except Interest rate spread is positively related. Foreign Currency Deposit Rate impacted on the dependent variable and the control variables (i.e. inflation and interest rates) positively. Demand Deposit Rate is significant to Inflation Rate and Interest Rate Spread. Foreign Currency Deposit Rate is significant to Loan to Deposit Rate and Interest Rate Spread. Time Deposit Rate has a significant relationship with the inflation rate. In the lagged year, Loan to Deposit Rate is significant with the control variables. This implies a short-run effect of banks deposit mix measures on Demand Deposit Rate, Time Deposit Rate, and Foreign Currency Deposit Rate on Loan to Deposit Rate, Inflation Rate, and the Interest Rate Spread. The control variable in the form of Interest Rate Spread has the highest correlation with bank deposit variables and is explained by 68.5%. The paper recommends that the Nigeria Monetary policy committee should devise suitable control variables impacting the rates of bank deposits in Nigeria. The volume of deposit to total rural branches should be improved to create effective Loan to Deposit Rate for bank financial sustainability in Nigeria.
