Effect of Financial Assets of Financial Instruments on Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

This study evaluates the effect of financial assets on the financial performance of seven (7) listed DMBs in Nigeria between 2018-2024 with amortized-cost and fair value through comprehensive income (FVOCI) as the independent variable and return on assets as the dependent variable. Data extracted from the audited published financial statements of the firms for the period covered were subjected to descriptive analysis and inferential statistics analysis. Diagnostics tests include: heteroscedasticity, Hausman test, Lagrange multiplier test. Panel Regression Analysis result reveals that amortized-cost financial assets exert a significant negative effect on return on assets (ROA), a result aligned with the literature showing that IFRS 9’s ECL model reduces profitability where credit-risk exposure is high. FVOCI assets, however, demonstrate no significant effect on ROA, supporting the argument that FVOCI classification shifts valuation effects to other comprehensive income rather than current earnings. The study recommends that regulators should strengthen the credit-risk management frameworks and banks should adjust their portfolio strategies in response to IFRS-driven income volatility.