A recent study titled "Financial Innovation and Performance of Deposit Money Banks in Nigeria" has discovered that Automated Teller Machines (ATM) and mobile money payments can positively impact the lending capacity of deposit money banks in Nigeria. Conducted by Tolulope Sopelola A., Ariyibi Mayowa E., and James A. Obadeyi, the study found that increased usage of these digital banking channels enhances banks' loan-to-deposit ratio, indicating improved deposit mobilisation and lending activities.
The researchers found that ATM and Mobile Money Payments (MOM) exhibit positive and statistically significant effects on the loan-to-deposit ratio, suggesting that increased usage enhances banks' lending capacity and deposit mobilisation. This implies that banks can lend more to customers when these digital channels are utilised more frequently. The study's findings demonstrate that the effect of financial innovation on banks' performance varies across different digital banking channels.
However, the study also found that National Electronic Fund Transfer (NEFT) and Point of Sale (POS) transactions had significant negative effects on banks' loan-to-deposit ratio. This means that an increase in NEFT and POS transactions may constrain loan growth. The researchers stated that their expansion may not be favourable for banks' lending capacity. In contrast, web-based transactions and NIBSS Instant Payments had no significant relationship with banks' loan-to-deposit ratio in the short run.
The study's findings support broader empirical evidence that highlights the influence of financial innovation on bank performance as channel-specific and varying in the short run. The researchers cited previous studies by Ibe & Obialor (2022), Effiom & Edet (2022), and Ashiru et al. (2023) that demonstrated similar results. This suggests that the impact of digital banking channels on banks' performance is not uniform and depends on the specific channel used.
Based on their findings, the researchers recommended that deposit money banks increase their investment in ATM and mobile payment technologies because of their positive contribution to financial performance. This is expected to enhance banks' lending capacity and deposit mobilisation. The researchers also suggested that banks reassess the operational frameworks for NEFT and POS transactions to improve their efficiency and support loan growth and effective liquidity management.
The study's recommendations are expected to guide deposit money banks in Nigeria in their investment decisions regarding digital banking channels. By intensifying investment in ATM and mobile payment technologies, banks can improve their financial performance and lending capacity. Additionally, reassessing the operational frameworks for NEFT and POS transactions can help banks to mitigate their adverse effects and align them with their objectives of loan growth and effective liquidity management.
The study's findings have significant implications for the banking industry in Nigeria, as they highlight the importance of digital banking channels in enhancing banks' lending capacity and deposit mobilisation. By adopting the researchers' recommendations, deposit money banks in Nigeria can improve their financial performance and contribute to the country's economic growth. The study's results can also inform policy decisions by regulators and policymakers in the banking industry.
Key points
- Increased usage of ATMs and mobile money payments enhances banks' lending capacity and deposit mobilisation in Nigeria.
- National Electronic Fund Transfer and Point of Sale transactions have significant negative effects on banks' loan-to-deposit ratio.
- Deposit money banks in Nigeria should increase investment in ATM and mobile payment technologies to improve financial performance.
