Effect of Investment Diversification on Nigerian Bank Performance

Abstract

The study investigates the nexus between investment diversification on the performance of commercial banks in Nigeria, for the period, 2012-2021. Using multiple regression models, we analyzed data to uncover valuable insights that can guide these institutions in optimizing their financial performance. The findings shows that investment in securities and the size of the loan portfolio have a significant positive impact on financial performance. Conversely, investment in associates demonstrated a notable negative association with financial performance, while bank size emerged as a positive predictor of financial performance. External factors such as interest rates, exchange rates, and the COVID-19 pandemic did not exhibit significant effects on financial performance in some models. However, monitoring these factors remains essential to adapt to evolving economic conditions. Our recommendations emphasize the importance of a well-structured diversification strategy, robust risk management practices, prudent loan portfolio management, and adaptability to changing economic environments. These insights can guide Nigerian deposit money institutions in their pursuit of sustained financial success while managing risks effectively.

Keywords: Investment Diversification, investment securities, financial performance, COVID-19