Operational Risk and Performance of Listed Deposit Money Banks in Nigeria: The Moderating Effect of Bank Size

Abstract

Deposit money banks performance has become a major concern for economists and policy makers because of their role in financing economic activities and their poor financial performance that can lead to failure and financial crunch which have undesirable impacts on the economic growth. The study examined the moderating effect of bank size on the relationship between operational risk and performance of listed deposit money banks (DMBs) in Nigeria. Data were collected from audited financial reports of selected thirteen (13) listed DMBs in Nigeria over the period of 2014 to 2020. Panel data approach was employed and fixed effects estimate was used for hypothesis testing after the Hausman test was run. The variables used are Banks performance measured by net interest margin, operational risk proxied by cost to income ratio, with Bank size as moderator. The study found that cost income ratio has significant negative effect on profitability of listed DMBs in Nigeria measured by net interest margin at 1% level of significance. However, the study recommends that DMBs should estimate the probability of an operational loss event occurring and the possible effect on bank financial performance on a quarterly basis, as well as implement appropriate internal reporting practices and procedures that are aligned with the scope of operational risk identified by supervisors and the banking industry as a whole.