The Determinants Of Commercial Banks Investment Portfolio In Nigeria: 1985 - 2004 In Retrospect

Abstract

Investment portfolio determinants for Commercial Banks is a very important
and complex aspect of commercial banking management since the failure of
a poorly managed bank due to increased risk exposure could lead to a
contagion of bank failures within the system. This study attempts to
empirically bring out the core variables (determinants) that influence
investment portfolio of commercial banks in Nigeria. Data were sourced
from the Central Bank of Nigeria (CBN) statistical bulletins and reports.
The study adopted both descriptive and analytical statistics, involving
regression analysis. From the analysis, it was discovered, that determinants
of commercial banks investment portfolio include deposits profile, liquidity
rate, exchange rate, interest, cost of funding, rate of returns as well as inflation
rates. Most of these variables are exogenous and have positive relationship,
which enhances economic growth and development. The linear regression
result signifies that investment portfolio can increase or decrease depending
on variations in the determinants studied. Since banks exert a lot of influence
on the pattern of economic development through deposit mobilization,
lending and investment activities, it is concluded that a proper understanding
of these determinants is given proper attention in investment portfolio,
decisions by commercial banks management and regulatory/supervisory and
policy makers.