INFLUENCE OF RISK ASSETS IMPAIRMENT ON PERFORMANCE OF NIGERIAN LISTED DEPOSIT MONEY BANKS
Keywords:
Assets Impairment, Risky Assets, Bank Profitability, Non-Performing Loans.
Abstract
Profitability is critical to the survival of Nigerian deposit money banks which is consistently been eroded by the impaired risk assets. Hence, this study was conducted to examine influence of risk assets impairment on performance of Nigerian deposit money banks. The specific objectives of the study were to; (i) determine the effect of impairment loss on operating profit; (ii) analyze effect non-performing loans ratio affect return on assets of Nigerian deposit money banks. Secondary data were collected and analysed using fixed and random effect regression analysis methods from a sample of 14 listed Nigerian deposit money banks. The study revealed that impairment loss, have significant negative relationship with operating profit (β=2.294, p‹ 0.01) and non-performing loan ratio have significant positive relationship with return on assets (β=0.067, p‹ 0.1). However, other variables such as inflation, liquidity and gross domestic product per capital also have effect on banks performance. The study concluded that risk assets impairment has significant negative influence on performance and that inflation, liquidity and gross domestic product have negative impact on profitability, while bank size has positive impact on profitability. The study recommended that; bank directors should put effective risk assets impairment test in place to boost reported profitability; the bank management should ensure effective management of liquidity ratio to boost return on equity; government policymakers should ensure that banks are mandated to disclose their risk assets impairment and expand their size by extending banking services to the unbanked areas.
References
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Almanaseer, M. (2014). The impact of the financial crisis on the Islamic banks profitability - evidence from Golf Corporation Council. International Journal of Financial Research 5(3); 2014
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El-Kassem, R. C. (2017). Determinants of banks’ profitability: panel data from Qatar. Open Journal of Accounting, 6, 103-111. https://doi.org/10.4236/ojacct.2017.64009
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Abrigo, L., & Ferrer, R. (2015). The effect of management compensation and debt requirements on earnings management concerning the impairment of assets in Philippines. Retrieved from DOI: 10.18196/jai.2016.0041.1-21.
Adegbie, F. F., & Dada, O. T. (2018). Risk assets management, liquidity management and sustainable performance in Nigeria deposit money banks. International Journal of Accounting Research, 6(2). Retrieved from doi:10.4172/2472-114x.1000178
Ahmed, R. M., Raiz, H. A., & Muhammad, U. Y. (2012). Does the loan loss provision affect the banking profitability in case of Pakistan; Asian Economic and Financial review 2(7):772-783.Retrieved from http://www.conscientiabeam.com/eco
Ahmad, F. & Tahir, S. H., & Aziz, B. (2014). Impact of loan loss provision on bank profitability in Pakistan; Research Journal of Social Science & Management, 3(12). Retrieved from https://researchgate.net/publication
Akinlo O., & Emmanuel M. (2014). Determinants of non-performing loans in Nigeria. Journal of Accounting & Taxation, 6(2), 2014, pp. 21-28
Akter, R., & Roy, J. K. (2017). The impacts of non-performing loan on profitability: an empirical study on banking sector of Dhaka stock exchange. International Journal of Economics and Finance; 9(3); 2017 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education
Alkassim, F. A. (2005). The Profitability of Islamic and Conventional Banking in GCC Countries: A comparative study, University of Wales Bangor, United Kingdom.
Almazari, A. (2014). Impact of internal factors on bank profitability: comparative study between Saudi Arabia and Jordan. Journal of Applied Finance & Banking, 4(1) Science press Ltd, 2014
Almanaseer, M. (2014). The impact of the financial crisis on the Islamic banks profitability - evidence from Golf Corporation Council. International Journal of Financial Research 5(3); 2014
Almumani, M. (2013). Impact of managerial factors on commercial bank profitability: empirical evidence from Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences 3(3), pp. 298–310
Amiraslani, H., Latridis, G. E., & Pope, P. F. (2013). Accounting for Asset Impairment: A test for IFRS Compliance in Europe. A Research Report by the centre for financial analysis and reporting research; Cass Business School.
Aminu, A. & Malami, M. (2015). Impact of bank compliance with accounting standards on profitability, asset base and number of branches in Nigeria. Studies in Humanities. Studies in Humanities, 8. Retrieved from https://www.researchgate.net/publication/320466938
Atomei, A., & Robu, V. (2011). Methodological and programming impairment solution of performing loans for banking companies in Romania. International Conference on Economics and Finance Research IPEDR, 4 (2011)
Bussoli, C., Conca, L., Gigante, M., & Madaro, G. (2016). Determinants of impaired loans and doubtful loans in Italy. Journal of Business and Economics, 7(8), pp. 1215-1225. Retrieved from http://www.academicstar.us
Buchory, H. A. (2015). Effect of credit risk and operational efficiency on banking profitability. Journal of Business and Management Sciences, 3(4); (2015): 118-123. doi: 10.12691/jbms-3-4-3
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Cheruiyot, R. (2016). The effect of asset quality on profitability of commercial banks in Kenya
Codjia, M. (2017). How does an impairment loss affect the income statement? Bizfluent. Retrieved from https://bizfluent.com/info-12016658-impairment-loss-affect-income-statement.html.
Davis, J. H., Schoorman, F., & Donaldson, L. (1997). Toward a stewardship theory of management, Academy of Management Review, 22(1), pp. 20-47
Deegan, C., & Unerman, J. (2006). Financial accounting theory, McGraw-Hill education, Maidenhead, Berkshire.
Ebenezer, O. O., Omar, W. A., & Kamil, S. (2017). Bank specific and macroeconomic determinants of commercial bank profitability: empirical evidence from Nigeria. Journal of Finance & Banking Studies 6(1), 2017:25-38. Retrieved from; https://doi.org/10.20525/ijfbs.v6i1.627
Ernst & Young (2012). The new impairment model US financial institutions weigh in on the new impairment model being developed by the FASB and IASB February 2012.
El-Kassem, R. C. (2017). Determinants of banks’ profitability: panel data from Qatar. Open Journal of Accounting, 6, 103-111. https://doi.org/10.4236/ojacct.2017.64009
Fernandes, S. A., Gonçalves, C., Guerreiro, C., & Pereira, L. N., (2016). Impairment losses: causes and impacts. Journal of Business Management. São Paulo, 18(60), p. 305-318, Apr. /Jun. 2016.
Guru, B. J, Staunton & Balashanmugam (2002). Determinants of commercial bank profitability in Malaysia. University Multimedia working papers, pp. 19 – 27
Habib, H., Khan, F., & Wazir, M. (2016). Impact of debt on profitability of firms; evidence from non-financial sector of Pakistan. City University Research Journal 6(1); January 2016 PP 70-80
Haddad, A., Al-Hare, O., & AbuGhazaleh, N. (2012). The value relevance of goodwill impairments: UK evidence. International Journal of Economics and Finance 4(4); April 2012. Retrieved from www.ccsenet.org/ijef
Hami, A., George, E. I., & Peter, F. P. (2013). Accounting for asset impairment: a test for IFRS compliance across Europe. Retrieved from https://www.cass.city.ac.uk/pdf_file.
Hoffmann, P.S., (2011). Determinants of the profitability of the US banking industry. International Journal of Business and Social Science, 2(22); December 2011
Hosna, A., Manzura, B., and Juanjuan, S. (2009). ‘Credit risk management and profitability in commercial banks in Sweeden. School of Business Economics and Law
Hooshyari, N. & Moghanloo, A.P (2015). Evaluating the impact of inflation on profitability of banks in Iran. Kuwait Chapter of Arabian Journal of Business and Management Review 4(9); 2015.
IAS 36, N. (2009). "International Accounting Standard 36 Impairment of Assets". Practical Issues, which discusses practical issues in applying IAS 36. Retrieved from https://www.ey.com/ifrs
Idris, I. J., (2014). Bank loan monitoring and loan performance: study of deposit money banks in Nigeria. A Thesis Submitted to The School of Postgraduate Studies, Ahmadu Bello University Zaria. Retrieved from http://Kubanni.abu.edu/jspui/bitstream.
Javed, A., & Khurshid, M. (2016). A review of impact of high debt on the profitability of the banks in Pakistan. Research Journal of Finance and Accounting 7(11), 2016.
Jensen, M.C., & Meckling,W.H. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), pp. 305-360
Kadioglu, E., Telceken, N., & Ocal, N. (2017). Effect of the asset quality on the bank profitability in Turkey. International Journal of Economics and Finance; 9(7); 2017
Kebewar, M. (2012). The effect of debt on corporate profitability evidence from French service sector.
Kimathi, G. J. (2014).The effect of loan loss provisioning on profitability of deposit taking sacco societies in Nairobi country. A research project submitted in partial fulfilment of the requirement for the award of the degree of Master of Business Administration, school of business, university of Nairobi. Retieved from http://Erepository.uonbi.ac.ke/handle/gitonga21
Kingu, P., Macha, S., & Gwahula, R. (2018). Impact of non-performing loans on bank’s profitability: empirical evidence from commercial banks in Tanzania. International Journal of Scientific Research and Management (IJSRM). 6(1), 2018. Retrieved from: www.ijsrm.in ISSN (e): 2321-3418
KPMG (2007). Loan Impairment Modeling according to IAS 39 using Based II parameters. Retrieved from https://www.spi-romania.eu/programm2007/ifrs
Kutsienyo, L. (2011). The determinant of profitability of banks in Ghana. A thesis submitted to the institute of distance learning, Kwame Nkrumah University of Science and Technology
Laghi, E., Mattei, M., & Marcantonio, M. (2013). Assessing the value relevance of goodwill impairment considering country-specific factors: evidence from EU listed companies. International Journal of Economics and Finance; 5(7); 2013. Retrieved from doi:10.5539/ijef.v5n7p32
Lustosa, P. R. B., Rodrigues, F. F., & Gonçalves, R. S. (2008). Intangible assets impairment test issues: the case of a Brazilian telecommunications company.
Marz, M. (2018). Asset impairment on a financial statement” small business-Chron.com, http://smallbusiness.chron.com/asset-impairment-financial-statement-80858.html. Accessed 16 July 2018.
Methodology and solution implementation – practical experience; Deloitte. Retrieved from https://www.spi-romania.eu/programm2007/ifrs19
Miron, V. & Burja, V. (2015). The reversible impairment of assets and the impact on economic performance in energy sector of Romania. Annals of the Constantin Brâncuşi” University of Târgu Jiu, Economy Series, 2(1), 2015
Molyneux, P. & Thornton, J. (1992). Determinants of European banks profitability: a note. Journal of Banking and Finance, 16: 1173-1178.
Moulton, A. (2011). An investigation of the determinants & forecast performance of bank profits in Jamaican Banks. Financial Stability Department Research and Economic Programming Division Bank of Jamaica
Murcia, A. & Kohlscheen, E. (2016). Moving in tandem: bank provisioning in emerging market economies. Monetary and Economic Department, BIS Working Papers No 548
Naceur, S. B. (2003). The determinants of the Tunisian banking industry profitability: panel evidence. Universite Libre de Tunis Working Papers.
Natalia, C., Adam, K. & Brcharest (2007). Impairment and provisioning Under IFRS.
Nawaiseh, M.E. (2016). Can impairment recognition under IAS 36 be improved by financial performance?. International Journal of Economics and Finance; 8(12); 2016.
NDIC (2011). Press briefing by Nigeria Deposit Corporation, on Resolution of failing banks through the establishment of bridge banks.
NDIC Publication (2018). Titled, AMCON, Bridge bank, Capitalization, Polaris, Resolution, Skye Bank.
Nethercott, L. & Anamourlis, T. (2009). Impairment of Assets: A Tax Accounting Interface in Australia. Journal of Law and Financial Mangement – 8(1)
Nurdiansyah, D. & Manda, G. (2018). The effect of allowance for bad debt loss to the level of profitability (case study in local bank Indonesia). Journal of Economics 6(1), 2018
Nyarko-Baasi, M. (2018). Effects of non-performing loans on the profitability of commercial banks - a study of some selected banks on the Ghana stock exchange
Okoye, L., Evbuomwan, G., Achugamonu, U., and Araghan, I. (2014). Impact of corporate governance on the profitability of the Nigerian banking sector. Esut Journal of Accountancy, 7(1), 2016.
Ojo, J. A. T., & Somoye, R. O. C. (2013). The impact of commercial banks non–performing loans on financial development in Nigeria.
Olaleye, M. O., Agboola, J. O., Solomon, A. Z., & Oyerogba, E. O., (2014). Financial reporting and compliance of impairment of non-current assets in the Nigerian banks. European Journal of Accounting Auditing and Finance Research 2(2), pp.18-35, April 2014.
Ozurumba, B. A. (2016). Impact of non-performing loans on the performance of selected commercial Banks in Nigeria. Research journal of Finance and Accounting, 7(16), 2016. Retrieved from https://www.iiste.org
Pandey, I. M. (2007). Financial Management, ninth edition; vikas publishing house pvt ltd
PWC (2016). IFRS 9: Impairment of risk assets; implementation challenges and strategy, Price water house. Retrieved from https://financialquest.com/ifrs-9-impairment
Riaz, S., Furqan, M. & Siddique, S.S. (2015). Advertising influence on the profitability of public and private sector commercial banks in Pakistan. Bus Eco Journal 7: 191. doi:10.4172/2151-6219.1000191
Sooriyakumaran.L, & Velnampy.T, (2013). Disclosures and impacts of impairment of non-current assets in the financial statements: A study on listed manufacturing companies in Colombo Stock Exchange (CSE) in Sri Lanka, Merit Research Journal of Accounting, Auditing, Economics and Finance 1(6) pp. 122-133.
Sooriyakumaran, L. & Velnampy, T. (2014). Impact of impairment loss on profitability and capital structure of listed manufacturing companies in Sri-Lanka. Retrieved from https://papers.ssrn.com/sol3/papers
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Published
2020-10-19
How to Cite
Adebisi, A. J., Alabi, A. W., & Fatimehin, K. (2020). INFLUENCE OF RISK ASSETS IMPAIRMENT ON PERFORMANCE OF NIGERIAN LISTED DEPOSIT MONEY BANKS. International Journal of Accounting & Finance Review, 5(3), 41-63. https://doi.org/10.46281/ijafr.v5i3.822
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2020 Adewale Joel Adebisi, Adeyemi Wasiu Alabi, Kolawole Fatimehin
This work is licensed under a Creative Commons Attribution 4.0 International License.
