Banks’ Price Behaviour and its Determinants in Nigeria

Oyebola Fatima Etudaiye-Muhtar, Abdulrazaq Taiye Jimoh, Abdulazeez Adewuyi Abdurraheem, Wasiu Oluwatoyin Ibrahim

Abstract


Bank-based financial systems, through the financial intermediation function, enhance economic growth. However, in the performance of this function, banks are faced with issues such as information asymmetry and inefficient institutional qualities that may lead to increased operational costs which reflects as social costs of financial intermediation and are passed on to economic units. Consequently, banks may be confronted with the problem of determining the right price for its products and services. On this premise, this study examines the pricing behaviour of Nigerian commercial banks and its determinants. The random effects regression estimation technique is used on annual panel data of 15 publicly listed Nigerian commercial banks for the period 2005 – 2017. Results from the investigation show that bank-specific factors such as bank size (0.871, p<0.05) liquidity (0.256, p<0.01), credit quality (0.095, p<0.1), and inflation (0.436, p<0.05) as a macroeconomic variable, have positive and significant effects on bank price behaviour. These findings suggest that the variables are associated with higher social costs of financial intermediation in commercial banks in Nigeria. It is recommended that in order to lower borrowing costs, banks should endeavour to reduce the level of these bank-specific factors which would lead to reduction in costs associated with information asymmetry and inefficiency. In terms of inflation, banks are recommended to factor in inflation related costs into their pricing process while monetary policy regulators should put in place, policies that target reduction in inflation rates

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