MODERATING EFFECT OF INFLATIONARY TREND ON THE RELATIONSHIP BETWEEN FINANCIAL RISK AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The study examined the moderating effect of inflationary trend on the relationship between financial risk and financial performance of listed deposit money banks in Nigeria. Financial performance as dependent variable is proxies by Tobin’s Q (TQ). Financial Risk Attributes constitutes Credit Risk proxies by non-performing loan (NPL), Liquidity Risk proxies by ratio of current asset to current liability (CR), Market Risk proxies by degree of financial leverage, Operational Risk proxies by operational expenses to total asset (OPEXTA) and Leverage Risk proxies by debt to equity ratio (DER) and they are independent variables. Inflationary Trend proxies by consumer price index (CPI), acts as moderating variable and interest rate and exchange rate are control variable proxies by percentage of prevailing lending rate and average exchange rate of Naira to USD respectively. The research employed expost-facto design where the data is extracted from the annual reports and accounts of listed deposit money banks in Nigeria, Central bank and NBS annual reports and bulleting for 21 years period from 2004 to 2024. The study population was 13 listed deposit money banks as at 31^st December, 2024, after filtering, using census sample method, 10 banks are found to be the sample size. The data was analyzed using descriptive statistics and multiple regressions. The study findings revealed that market risk, operational risk and leverage risk are positive and statistically significant to financial performance (Tobin’s q). Liquidity risk is negative and statistically significant to Tobin’s Q. Credit risk was found to be positive and statistically insignificant to Tobin’s Q. The control variables, interest rate is found positive and statistically insignificant to Tobin’s Q. Exchange rate was found negative and statistically insignificant to Tobin’s Q. Therefore, inflationary trend moderate the relationship by strengthening the effect of banks financial risk on financial performance. The study concludes that the identified financial risk attributes are signaling factor to banks stakeholders. It recommends that the stakeholders should consider inflationary trend effect in the indirect relationship between financial risk and financial performance when making policies and investment decision in the Nigerian Deposit Money Banks.