EFFECT OF OPERATIONAL EFFICIENCY ON THE PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA

This study investigates the effect of operating efficiency on the profitability of Deposit Money Banks (DMBs) in Nigeria over the period 2020 to 2024. In light of increasing competition and regulatory pressures, Nigerian banks face growing challenges to optimize operational costs while sustaining profitability. The research adopts an ex-post facto design using secondary data obtained from audited annual reports of selected banks Zenith Bank, Access Bank, GTBank, Fidelity Bank, and Unity Bank as well as publications from the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), and Nigerian Stock Exchange (NSE). Operating efficiency was measured using key indicators such as Operating Expenses to Total Assets and Cost-to-Income Ratio, while profitability was proxied by Return on Assets (ROA). Descriptive and inferential statistical techniques, including panel data regression models (Pooled OLS, Fixed Effects, and Random Effects), were employed. The Hausman test was used to determine the appropriate model, and the Generalized Method of Moments (GMM) was applied to address endogeneity concerns. Findings reveal a statistically significant negative relationship between operating efficiency indicators and bank profitability, suggesting that higher operational costs tend to reduce profitability. The study concludes that improving cost management and operational discipline is essential for sustaining profitability in Nigeria’s banking sector. Based on these findings, it recommends that banks implement strategic cost-cutting initiatives, invest in process automation, and enhance revenue diversification to improve operational efficiency and profitability