Effect of Investment Securities on the Financial Performance of Banking Business in Nigeria

Although, popular in the execution of banking business, investment securities and its effect on banks performance is not so popular among past empirical studies. Hence, this study explores the effect of investment securities on the financial performance of banking business in Nigeria for the period 2010 to 2020. Specifically, this study aims to evaluate the effect of investment securities on earnings per share, return on assets, and return on equity of deposit money banks (DMBs) in Nigeria. The secondary data from the published financial statements of selected DMBs in Nigeria were analyzed using Panel Autoregressive Distributed Lag (P-ARDL) technique. Three models were estimated in this study with each having earnings per share, return on assets and return on equity, respectively, as their dependent variable while investment securities, loan and advances to customers, and bank size constitute the explanatory variables for each of the models. This study establishes the existence of a positive and significant correlation between investment securities and each of earnings per share and return on assets of banks unlike a negative and significant correlation which exists between return on equity and investment securities of banks in Nigeria. Moreover, investment securities have long-run negative but non-significant effect on earnings per share of banks in Nigeria. However, in the short-run, investment securities’ effect on earnings per share of banks is negative but statistically significant. Also, investment securities have positive but non-significant effect return on assets of banks in both long-run and short-run. Furthermore, investment securities have negative and significant effect on return on equity of banks in Nigeria in both long- run and short-run. The study concludes that investment securities negatively affect the financial performance of banking business of deposit money banks in Nigeria. Therefore, there is a need for banks’ management to diversity their investment portfolios such that less amount is committed to unprofitable investment securities whose returns are easily eroded by market risks.