Banking Business Models and Deposit Funding Requirements: A Study of Selected Nigerian Deposit Money Banks

The objective of this paper was to examine the empirical evidence of the different business models that Nigerian deposit money banks operate and their deposit funding requirements using the top five Nigerian deposit money banks by asset base. Data were collected from various annual reports of Access Bank, Zenith Bank, FBN Holdings, UBA, and GT Bank from 2005 to 2020. We reviewed the bank’s primary deposit characteristics to establish the prevailing deposit mix, with an inquiry into why banks switch models. We used the cluster analysis technique to analyse the selected banks statements of financial position ratios and identify the different business models the banks had adopted in the period under study. The studied banks, Access, Zenith, FBN Holdings, UBA, and GT Bank, were classified according to the respective business models they adopted using the data characteristics. The identified models are retail-funded, wholesale-funded, and market-oriented. The findings from the cluster analysis show that Zenith, UBA, and FBN Holdings adopted wholesale, retail, and market-oriented models, respectively. Access and GT Banks switched models at various times. Across the models, the activities of the banks on the asset side of the balance sheet were mainly funded by customer deposit liabilities. The banks’ deposit structures also indicate that the mixes were skewed in favour of current accounts and savings bank accounts, which are known, in banking parlance, as demand deposits. We conclude that demand deposits are critical and the most vital components of banking institutions deposit structures, irrespective of the business model adopted. Its implications for the profitability, efficiency, and effectiveness of the bank's overall objectives cannot be overemphasized. We also conclude that the reason for switching models in Nigerian deposit money banks flows more from the strategic decisions of the management than regulatory or environmental factors.