DOI: 10.36347/sjebm.2014.v01i07.001

Pages: 276-290

This paper investigated the most profitable source(s) of profit maximization in commercial banks in Nigeria as a result of the available records from CBN. The data sets were based on the post-merger monthly income and expenditure of all the twenty-one licensed commercial banks in Nigeria for a period of eight years, equivalently ninety-six months. Commercial banks’ sources of income were classified into five categories: interests on loans and advances, commission on turnover, electronic banking charges, commission on sales of third party institutions such as sales of institution forms, and finally income from other investments such as commission on treasury bills, money market instruments, capital projects financing and so on; all these are considered as exogenous variables for which commercial banks’ expenditure is classified as endogenous variable. A number of assumptions underlying the use of econometric approach for modelling were confirmed using appropriate techniques. It was discovered that interests on loans and advances give the most profitable source of income while commission on sales of third party institutions happened to be the least means of profit. After proper variable scrutiny by stepwise selection procedure, a reliable econometric model was obtained for forecasting. The conclusions reached on this study resulted to a piece of very strong advice such that commercial banks should intensify efforts by all means to convince and encourage more customers on financial borrowings and, also increase the risks of financing capital projects with a view to maximizing profits in banking sector.