Global Financial Crisis and the Profit Efficiency of First Bank of Nigeria PLC; a Stochastic Frontier Analisis

Abstract

This study examines the Impact of Financial Crisis on the Profit Efficiency of First Bank of Nigeria Plc. The study makes use of data covering the period 1981-2017. The objective of the research work is to analyse the trend in efficiency of First Bank of Nigeria Plc before, during and after the financial crisis The study rests on the Minsky Financial Instability Hypothesis theoretical framework and uses the translog Stochastic Frontier profit function with one output (Loans), two inputs (price of funds and noninterest expense) and two netputs (fixed assets and equity) to formally examine the impact of the Global Financial Crisis on the profit efficiency of this bank. This study also employs the Multivariate Regression Analysis to examine the relationship between the profit efficiency of the bank and some contextual variables. To achieve this objective, the study uses the Ordinary Least Square to examine the potential determinants of the bank's Profit efficiency. The result of the translog profit function shows that the bank made a significant progress during the crisis period while that of the OLS shows that the Global Financial Crisis does not have a statistically significant impact on the profit efficiency of the bank. Looking at the other determinants of the profit efficiency of the bank, the result shows that variations in the dependent variable has been largely explained by the independent variable as shown by R-square of 0.9628. Also, total asset, bank's diversification, capital strength all have positive effect on the profit efficiency of the First Bank of Nigeria while Bank's loan intensity and the Gross Domestic Product have negative impact. The study concludes that Global Financial Crisis did not have impact on the efficiency of First Bank of Nigeria Plc. It is therefore essential that the regulatory and supervisory authorities (CBN and NDIC) formulate and implement monetary policies that are effective in helping the banks to improve their operations, thereby leading to efficiency in resource allocation and utilization.