Fee-Based Income and Bank Profitability: A Study of Deposit Money Banks in Nigeria

Abstract

The study examines how credit-related fees, account maintenance fees, and other fees and commissions influence the return on assets (ROA) of deposit-taking institutions in Nigeria. Using a causal-comparative design, the study extracted longitudinal data from the periodic reports of eleven (11) listed deposit money banks (DMBs) for the period 2014 to 2022 to assess the interplay between ROA and the study's explanatory variables. The Durbin-Wu-Hausman (DWH) test was conducted, and the Fixed-Effects model was found to be the most consistent and efficient estimator. The results indicate that credit-related fees, account maintenance fees, and other fees and commissions positively influence the ROA of DMBs. This affirms the crucial role of strategic diversification of fee-based income in banking resilience. Therefore, the study concludes that non-interest income is a significant determinant of the profitability and financial stability of DMBs in Nigeria. The study recommends expanding non-interest income as a policy to enhance financial stability and resilience. Banks should ensure that credit-related fees, other charges, and commissions are fair and transparent to support the long-term sustainability of fee-based income. As banks diversify their fee-based income activities, the Central Bank of Nigeria must strengthen its regulatory capabilities to stamp out predatory practices that could derail banking penetration and usage in Nigeria.