Asset Structure and Profitability of Microfinance Banks: Evidence from Akwa Ibom State, Nigeria

Abstract

This study examines the relationship between asset structure and profitability in microfinance banking in Akwa Ibom State, Nigeria. It is prompted by the quest for empirical evidence of the link between asset classes and profits made by Microfinance Banks (MFBs). Data relating to income-earning assets and profits are obtained from selected registered MFBs in Akwa Ibom State, between 2007 and 2015. Descriptive and inferential statistical tools, including regression and correlation tests were used for data analysis. The results show that asset classes have varying effects on profits of MFBs, and that over eighty-eight per cent of the total variations in profits made by this category of banking can be explained by the combined effect of the asset structure. The study recommends that in order to maximise the returns on assets, MFBs should pay adequate attention to the mix and reward-to-variability ratio of their assets; and that in making asset allocations, preference should be given to loans and advances to take advantage of their positive influence on profits.