DETERMINANTS OF NET INTEREST MARGIN OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study investigates the determinants of net interest margin (NIM) of deposit money banks in Nigeria. Specifically, it examines the relationship between savings deposit rate (SDR), prime lending rate (PLR), maximum lending rate (MLR), and treasury bill investment volume (TB) on NIM over the period 2014 to 2023. The study employs panel data analysis techniques, including descriptive statistics, correlation analysis, panel unit root tests, and fixed effects regression. Findings reveal that SDR has a positive and statistically significant effect on NIM, underscoring the importance of competitive savings rates in enhancing deposit mobilization and interest income. In contrast, PLR and MLR exhibit positive but statistically not significant effects, indicating that changes in lending rates alone may not significantly impact bank profitability due to broader market and regulatory constraints. Treasury bill holdings (TB) show a negative but statistically insignificant effect on NIM, suggesting that while they provide risk-free returns, excessive allocation to T-bills may reduce banks' income from core intermediation activities. Based on these findings, the study recommends that banks adopt a deliberate strategy to maintain attractive savings deposit rates to strengthen deposit
mobilization and loanable funds. It also advises that lending rates be managed through targeted credit pricing that supports productive sectors while remaining competitive. Furthermore, banks should review their portfolio allocation strategies to avoid over-reliance on treasury bills and instead channel more resources into profitable lending. A balanced interest income management approach is essential for sustaining healthy margins, and regulatory authorities are encouraged to support this with macroeconomic stability and clear monetary policy guidance.