Digital Transformation and Performance of the Deposit Money Banks in Nigeria

Abstract

The paper examined how the digital transformation has impacted the performance of the deposit money banks in Nigeria between 2009H1 and 2024H2. The point-of-sale transactions (POS), web payment transactions (WPAY), and mobile payment transactions (MPAY) were used as proxies of digital transformation, and the performance was evaluated by the ratio of return on assets (ROA), personnel expenses to gross income (PEGI), and the ratio of return on equity (ROE). The research design adopted was ex-post facto research and the secondary time-series data employed was of bi-annual data that was sourced in the Central Bank of Nigeria Statistical Bulletin and Financial Stability Reports. Descriptive statistics, correlation analysis, augmented dickey fuller unit root tests, error correction modelling, ordinary least squares multiple regression, and post estimation Diagnostic tests were used. The findings showed that the statistically significant impact on ROA was jointly with digital transformation (R-squared = 0.3332; F-statistic = 4.6645; p = 0.0091) but POS, WPAY, and MPAY were not significantly significant at the 5 percent level. In the case of PEGI, the impact of digital transformation on personnel-cost efficiency had a significant and statistically significant influence (R-squared = 0.8770; F-statistic = 66.5747; p = 0.0000). In the case of ROE, the combined effect was only very weakly explanatory and statistically insignificant (R-squared = 0.0353; F-statistic = 0.3413; p = 0.7956). The long-run tests based on the residual revealed that the three models had stable long-term relationships and the error-correction terms were not only negative but also statistically significant, which indicated the adjustment of short-run disequilibrium into the long-run equilibrium. It was found that digital transformation is applicable to the performance of deposit money banks in Nigeria, although its impact is greater on the asset profitability and personnel-cost efficiency than on the shareholder return in the period considered. The research suggested more robust digital infrastructure, web-payment optimization, enhanced security architecture, cost-discipline, and integrated channel management.