Title: Financial Hedging Practices And Financial Performance Of Deposit Money Banks In Nigeria
Authors: OLUGBABI, Emmanuel Seun, EHIEDU, Victor C Ph.D
Volume: 9
Issue: 5
Pages: 180-194
Publication Date: 2025/05/28
Abstract:
This study examined the effect of financial hedging practices on financial performance of Deposit money banks (DMBs) in Nigeria from the period of 1990 to 2023 (34years). In order to evaluate the effect of financial hedging practices onfinancial performance of DMBs in Nigeria, the following measures financial hedging practices, namely; Credit Risk Hedging (CRH), Liquidity Risk Hedging (LRH), Market Risk Hedging (MRH) and Derivatives Risk Hedging (DRH)in relation to financial performance proxied with Returns on Equity (ROE) of Deposit money banks in Nigeria. The CBN Statistical Bulletin, CBN Annual Report and CBN Bank Supervisory Annual Report from 1990-2023were used to acquire data for the research. Descriptive statistics, correlation analysis, diagnostics tests, unit root test, Johannsen cointegration test and ordinary least multiple regression analysis were used to assess the research hypotheses. In the light of the findings, CRH, LRH, MRH and DRH have significant effects on ROE of DMBs in Nigeria. Hence, the study concluded that financial hedging practices have significant effect onfinancial performance of DMBs in Nigeria. The study recommended that Deposit money banks in Nigeria should strengthen their risk management frameworks to incorporate comprehensive strategies for credit, liquidity, market, and derivatives risk hedging. This can be achieved through the adoption of advanced risk assessment tools and methodologies that align with international best practices.Banks should invest in training programs for their risk management teams to ensure they are well-versed in the latest hedging techniques and financial instruments. This will enhance their ability to effectively manage risks and improve overall financial performance. This study contributes to the existing body of knowledge by providing empirical evidence on the positive and significant effects of various risk hedging strategies on the financial performance of deposit money banks in Nigeria. It highlights the importance of risk management in enhancing return on equity.