The Impact of Market Share on Deposit Money Banks’ Profitability in Nigeria

Abstract

The main objective of this paper is to empirically assess the impact of market share on Deposit Money Banks’ profitability in Nigeria, taking a case study of five selected banks. The theoretical underpinning highlighted the Relative Market Power (RMP) Hypotheses. The empirical analysis covered the period from 1981 to 2011. The data for the study were obtained from secondary sources including the annual reports and financial statements of the selected banks and Central Bank of Nigeria (CBN) statistical bulletin. The study adopted the Engle and Granger two steps procedure in co-integration. The study revealed that market share played an important role in explaining the banks Return on Assets (ROA) which is a measure of banks’ profitability. The strong, positive and significant relationship between market share and banks’ profitability suggest that banks’ profit margins increase more with market share. It was recommended that banks should increase their market share by rendering more attractive services including offering attractive loans and deposit rates. Also, Deposit Money Banks that are not doing very well in terms of profitability because of their small market share can merge together if they wish in order to benefit from the advantages of economies of scale thereby widening their profit margins.

Keywords: Market Share, Banks’ Profitability, Return on Assets (ROA), Deposit Money Banks