Credit Card Usage and Financial Performance of Deposit Money Banks in Nigeria
Abstract
This study investigates the effect of credit card usage on the financial performance of deposit money banks in Nigeria, with a focus on analyzing the relationship between key credit card metrics and Return on Assets as a measure of bank profitability. The study employs a quantitative research design, specifically an ex post facto design, which analyzes secondary data from 2006 to 2025. The main independent variables considered in the study include Credit Card Transaction Volume , Credit Card Transaction Value , Number of Active Credit Cards , Credit Card Outstanding Balance Ratio , and Credit Card Default Rate . The dependent variable, ROA, reflects the profitability of banks relative to their total assets. Using a census sampling technique, the study included all 25 licensed deposit money banks in Nigeria that consistently participated in the credit card market and provided complete financial data over the study period. Data for the study was extracted from the annual reports of the banks, as well as from the Nigerian Deposit Insurance Corporation and the Central Bank of Nigeria . The analysis was conducted using Ordinary Least Squares regression, which estimated the impact of credit card usage metrics on bank profitability. Several diagnostic tests, including descriptive statistics, correlation analysis, variance inflation factor tests, Breusch-Godfrey Serial Correlation LM, heteroskedasticity, Ramsey RESET Test, Group Augmented Dickey-Fuller Unit Root Test and Engle-Grager Cointegration Test, were conducted to ensure the validity of the regression model. The findings revealed that CCTVL, CCTV, CCOBR, and CCDR all had statistically significant positive effects on ROA. Specifically, higher transaction volumes and values, as well as larger outstanding balances and higher default rates, were associated with increased profitability. However, the study found no significant relationship between the Number of Active Credit Cards and ROA, indicating that simply increasing the number of active credit cards without enhancing transaction activities does not substantially impact bank profitability. In conclusion, this study emphasizes the need for Nigerian banks to adopt targeted strategies that promote higher transaction volumes and values, while also improving credit management practices to mitigate the risks associated with defaults. The study recommends that banks should focus on increasing transaction volumes and values while carefully managing credit card defaults and outstanding balances to optimize profitability.
Keywords
Credit CardTransaction VolumeTransaction ValueCard Outstanding Balance Default Rate and Return on Assets JAFM JAFM
References
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