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Volume 13 Issue 3, July-September 2025  

ISSN: 2836-9416 

Impact Factor: 6.41 

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PORTFOLIO DIVERSIFICATION AND OPERATIONAL 

RESILIENCE OF BANKS IN NIGERIA. 
 

1Oliogu, E.O. Ph.D 
2Eyamu, F.O.

 And 3Biwei, T. A. Phd. 
1, 2Department of Banking and Finance, Dennis Osadebay University, Delta State. 

3Federal College of Education, Delta State. 

Correspondence E-mail: efemenaoliogu@dou.edu.ng 

DOI: https://doi.org/10.5281/zenodo.15854079 

 

ABSTRACT: This study investigates how different portfolio diversification strategies affect the 

operational resilience of Nigerian banks between 2008 and 2022. The research addresses the 

problem of instability in the Nigerian banking sector, especially during economic crises like 

the 2008 financial crash and the COVID-19 downturn, and explores whether diversification can 

enhance banks’ ability to withstand such shocks. Using time series data from the Central Bank of 

Nigeria and the NDIC, the study applied Ordinary Least Squares (OLS) regression to examine the 

effects of four diversification strategies: asset, deposit, investment, and product diversification. The 

dependent variable was operational resilience, measured by operational efficiency. Findings revealed 

that asset and deposit diversification significantly improve resilience, with deposit diversification 

having the strongest positive effect. However, investment diversification had no significant impact, 

and product diversification had a negative effect, suggesting that expanding into too many product 

lines may reduce efficiency and stability. The study concludes that Nigerian banks can boost their 

resilience through strategic asset and deposit diversification but should be cautious with product 

diversification to avoid operational strain. 

 

1.0 INTRODUCTION 

The Nigerian banking sector operates in a dynamic environment characterized by economic volatility, 

regulatory changes, foreign exchange volatility, and technological change risk. Banks being the major 

beneficiaries of economic boom are also at the receiving end during period of economic recession 

(Asemota & Ogedengbe, 2023). The demand for banking services during period of boom increases thus 

causing an increase in their profit margin. However, in times of recessions, they suffer the consequences 

of hostile economic policies. Operating in such hostile environment leads to decline in their revenue. 

Financial institutions therefore need strategies to mitigate risk encountered in the course of carrying 

out their operational activities in order to cushion the effect of the shocks arising from these changes. 

Portfolio diversification is the veritable tool needed by banks to manage financial risks to ensure 

stability in the banking sector.  

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Volume 13 Issue 3, July-September 2025  

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Impact Factor: 6.41 

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In recent years, Nigeria went through a serious economic downturn due to the effects of COVID-19. 

However, the economy started to recover when restrictions were eased. According to a 2021 report by 

the World Bank, the Nigerian government introduced several important policy changes. These included 

unifying the exchange rate, removing fuel subsidies, and adjusting electricity prices to better reflect 

actual costs. The banking sector was also affected by these changes. 

Banks play a key role in the growth of any country because they provide services like loans and savings 

that support business activities and the economy in general. According to Jibrin et al. (2022), the 

strength of a country’s economy is closely linked to the health of its banking system. The 21st century 

banking sector operates in a fast-changing and competitive environment, which has pushed banks to 

look for new ways to grow and stay strong. (Erhijakpor & Eyamu, 2025). 

 One strategy banks use to deal with uncertainty is diversification. Osifo & Evbayiro-Osagie (2020) 

explained that diversification can help businesses perform better by spreading their resources across 

different projects or areas. This strategy allows banks to stay competitive, increase profits, and reduce 

risks. Banks can diversify in many ways by investing in different things like stocks, real estate, and 

bonds. Therefore, diversification of banks’ portfolio is essential for the stability of the banking system. 

Arising from the financial crises of 2007/2008, emphasis is now placed on the need for banks to keenly 

measure and control their credit exposures to minimize the resultant effect of credit risk (Basel 

Committee on Banking Supervision, 2014). The regulatory bodies in this sector has made efforts 

towards mitigating risk experienced in the banking sector. 

Following the global financial crisis of 2008/2009, the Federal Government of Nigeria, during the 

tenure of Sanusi Lamido Sanusi as CBN Governor established the Asset Management Corporation of 

Nigeria (AMCON) in July 2010 to help resolve the liquidity and solvency challenges faced by Nigerian 

banks. AMCON was charge with the responsibility of stabilizing the Nigerian banking sector by 

acquiring banks toxic assets (non-performing loans) from commercial banks to reduce the level of 

credit risk and rescuing distressed banks in Nigeria (Ungersboeck & Runkel, 2021).  

Despite the efforts of the regulatory authorities to put measures in place to mitigate the financial risk 

in the banking sector in Nigeria, cases of bank failure are still being recorded in the sector. A most 

recent case is that of Heritage bank whose license to operate was revoked on June 3, 2024. As reported 

by The Sun Nigeria (2024), heritage bank had about N700 billion non-performing loan as of March, 

2024. Also, the banks’ tier 1 capital (reserves, equity and accumulated earnings) was in a deficit of over 

N1 trillion. It is therefore important for banks to put in place internal strategies to withstand shocks 

amidst challenges encountered. The call to action is for banks to maintain well diversified portfolios. It 

is on this basis we examined how portfolio diversification strategies affect operational resilience of 

banks in Nigeria. There is therefore the need for commercial banks diversify their portfolio to mitigate 

credit risks and enhance performance.  

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American Research Journal of Economics, Finance and Management 
Volume 13 Issue 3, July-September 2025  

ISSN: 2836-9416 

Impact Factor: 6.41 

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Many studies have been done in other countries to see how Portfolio diversification affects banks 

performance. Some studies have also looked at Nigerian banks and other businesses in Africa. In Sierra 

Leone (Kollie, 2024); Rwanda (Kamagoba & Irechukwu, 2023) and Serbia (Radojičić, & Marinković, 

2023). Studies in the Nigerian banking sector are; Amahalu, et al. (2023); Ayodele, et al (2023); Obaro, 

et al. (2022); Omeni & George, (2021). Octavianus & Fachrudin (2022) conducted a study on internal 

banks; Omosa, et al. (2022) Tea factories in Kenya; Wegwu (2020) food and beverages firms in Rivers 

state; Abuh and Echukwu (2020) Dangote Group; and Njuguna, et al. (2018) Non-financial firms in 

Kenya. However, there are still gaps in the research, especially on Nigerian banks. 

This study aims to fill that gap by examining portfolio diversification strategies and operational 

resilience of Nigerian banks over fifteen (15) years from 2008 to 2022. Specifically, the study examine 

how asset diversification enhances the operational resilience of Nigerian banks; ascertain how deposit 

diversification influences the operational resilience of Nigerian banks; investigate the extent to which 

investment diversification affect influences the operational resilience of Nigerian banks; and determine 

the degree to which product diversification affect influences the operational resilience of Nigerian 

banks 

2. 0. REVIEW OF RELATED LITERATURE  

2.1. Conceptual Review 

2.1.1. Portfolio Diversification Strategies 

Ihejirika and Aderigha (2021) defined portfolio diversification strategies as the spread of investor’s 

resources (funds) to different investment opportunities. It is a situation whereby an investors does not 

rely on single investment opportunities. The essence is to minimize risks while maximizing returns by 

spreading funds across different investment avenues. It is measured by assets diversification, deposits 

diversification, investments diversification and products diversification 

2.1.2. Assets Diversification and Operational Resilience 

Asserts diversification involves spreading funds across different assets category like land, capital 

market instruments (stocks, shares and bonds), money market instruments (treasury bills, certificate 

of deposits, treasury certificates, etc.), land, buildings, etc. so as to manage risk. (Ayodele, et. al, 2023). 

A well-diversified portfolio of assets reduces the risk inherent in an investment.  Obaro, et al (2022) 

surmised that asset diversification contributes positively to the ability of financial institutions to remain 

resilient especially during economic downturn.   

2.1.3. Deposits Diversification and Operational Resilience 

According to Rose and Hudgins (2016), deposit diversification is a way banks use their funds (deposits) 

to buy assets with varying level of risk elements and maturity period (long, medium or short term) 

depending on the account the funds are drawn from.. Diversification of deposits by financial 

institutions will help the organization to maximize the shareholders wealth (Omeni & George, 2021).  

2.1.4. Investments Diversification and Operational Resilience 

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According to Obaro, et al (2022), putting all your investment funds in one basket is detrimental to an 

organization’s health. Investment diversification is aimed at mitigating unexpected financial shocks 

and allowing operations to continue. When investments are properly diversified and risks are reduced, 

returns is guaranteed. 

2.1.5. Products Diversification and Operational Resilience 

According to Jayathilake (2018) expanding business offerings of a firm by delving into other market 

potentials of an already existing products or an addition of a new product line to the firm’s already 

existing products increases a firm’s market power, creating synergy in market operations and reduces 

bankruptcy rate and the potential of increasing returns, profitability and on the long run help the firm 

to be more stable and resilient during economic downturn. Njugunakwaska and Orwa (2018) noted 

that product diversification is essential for increasing a firm’s performance.  

2.2. Theoretical Review 

2.2.1. Modern Portfolio Theory (MPT) 

Proposed by Harry Markowitz in 1952, Modern Portfolio Theory opines that risk-averse investors can 

construct diversified portfolios to maximize returns while minimizing risk (Oladimeji & Udosen, 2019). 

Rather than assessing investments in isolation, MPT emphasizes evaluating how each asset contributes 

to the overall portfolio’s risk-return profile (Nwafor & Amahalu, 2021). Diversification is key to 

achieving optimal investment outcomes. 

2.2.3. Market Power Theory (MPT) 

Introduced by Porter (1980), Market Power Theory asserts that firms gain competitive advantage by 

differentiating themselves and influencing market dynamics through strategic positioning and 

diversification. Key drivers of market power include limiting rivalry, reciprocal buying, and cross-

subsidization—each reinforcing the others to strengthen a firm's influence (Kollie, 2024) 

Empirical Review 

Using Robust Least Square (RLS), Ezeana, et al (2024) evaluated corporate diversification effect on 

value of listed conglomerate in Nigeria. Corporate diversification was gauged using product 

diversification (PRODIV), subsidiary diversification (SUBDIV), regional diversification (REGDIV) and 

sector diversification (SECDIV) while the corporate value was measured by Tobin’s Q. The ex-post facto 

research design was employed for the study. A sample of five (5) listed conglomerates out of the six (6) 

listed conglomerates was used for the study. Secondary data from the annual reports of the sampled 

conglomerates from 2012 to 2023 was used in analyzing data. It was discovered that PRODIV and 

SECDIV has a significant negative effect on corporate value of listed conglomerates in Nigeria. 

Conversely, SUBIV and REGDIV has a significant positive effect on corporate value of listed 

conglomerates in Nigeria.  

Using descriptive research design, Kollie (2024) sought to determine the effect of income diversification 

on the financial performance of commercial banks in Sierra Leone from 2018 to 2022. The study found 

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that income diversification was negatively related to financial performance. Also, size and capital 

adequacy had a positive effect, which was statistically significant, while liquidity had a negative impact 

on financial performance and was not statistically significant. 

Agbesuyi, et al. (2023) delved into the nexus between investment diversification and performance of 

commercial banks in Nigeria, from 2012 to 2021. Using multiple regression models, findings revealed 

that investment in securities and the size of the loan portfolio has a significant positive impact on 

financial performance (Net interest margin-NIM), ROA and ROE). Conversely, investment in 

associates demonstrated a notable negative association with financial performance, while bank size 

emerged as a positive predictor of financial performance.  

Amahalu, et al. (2023) examined the nexus between diversification and financial performance of quoted 

commercial banks in Nigeria between 2009 and 2022. Panel Least Square (PLS) regression analysis 

was employed in analyzing the data sourced. Findings showed that investment in debt securities, 

investment in equity securities and investment in subsidiaries measures of diversification has a 

significant positive relationship with return on assets of quoted commercial banks in Nigeria. 

Ayodele, et al (2023) studied the effects of portfolio diversification on the financial performance of 

Nigerian deposit money banks (DMBs). Portfolio diversification was gauged using sectorial credit 

diversification, income stream diversification, deposit diversification, and investment diversification 

while financial performance measured by return on equity. The study spanned from 2000 to 2022, data 

were obtained from the yearly financial statements of six (6) selected Nigerian DMBs. The results 

revealed that sectorial credit diversification and deposit diversification significantly improved the 

financial performance of DMBs in Nigeria, whereas income stream diversification and investment 

diversification have the opposite effect. 

Radojičić, and Marinković (2023) explored the relationship between the diversification of bank 

activities and a set of bank performance indicators by running multiple regression on panel data set of 

22 operating banks in Serbia for a period 15 years (2007-2021). They found a positive influence of the 

degree of diversification, measured both by income composition and earning assets composition 

indicators, on the levels and stability of the banks’ return on equity. The presence of COVID-19 crisis 

revealed the tendency to reverse the long-term relationship. 

The study by Obaro, et al. (2022) centered on diversification strategy and performance of banks in 

Nigeria for 22 years (1999-2020). Time series data from the audited financial reports of the ten (10) 

banks considered were collected from CBN statistical bulletin for analysis. Diversification was 

operationalized by asset diversification (ASTD), deposit diversification (DEPD), investment 

diversification (INVD) and product diversification (PROD) while bank performance was measured by 

ROE. The study evidenced that ASTD and INVD posed a high direct effects on bank performance while 

PROD exerts direct, statistically insignificant effect on bank performance. However, DEPD exerted high 

negative effects on bank performance.  

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Similarly, Octavianus & Fachrudin (2022) considered implementation of the income diversification 

strategy on stability of thirty-two (32) international banks indexed by Forbes from 2010-2019. The 

generalized method of moments (GMM) was used to analyze the panel data. It was discovered that the 

implementation of the income diversification strategy adopted by international banks increased their 

stability during the reviewed periods.  

In Nigeria, Jibrin, et al. (2022) studied loan portfolio diversification effect on risks and returns of 

thirteen (13) banks from 2009 to 2020. Using the pooled OLS, it was discovered that diversification of 

bank’s loan does not significantly increase risk level of banks in Nigeria. Also, diversification of loan 

increases the returns of banks. 

Omosa, et al. (2022) sought to determine the effect of product diversification strategy and performance 

of selected tea factories in Kenya. The study purposively selected Kisii and Kericho Highlands regions. 

Data analysis was conducted using simple linear regression estimate. Study findings indicated that 

product diversification strategy have positive effect on firm’s performance. 

Salman, et al. (2020) conducted a research to investigate the relationship between investment portfolio 

and fourteen (14) selected banks’ financial performance in Nigeria. The study spanned from 2008 to 

2017. Panel data analysis was conducted and it revealed that investment in bond has significant but 

negative effect on ROA, a proxy of financial performance while cash reserve had a positive but an 

insignificant effect on financial performance and treasury bills has a negative and an insignificant effect 

on financial performance. 

Wegwu (2020) analyzed the relationship between diversification strategies and business performance 

of ten (10) food and beverages firms in Rivers state, Nigeria. Questionnaires were administered to 177 

employees of selected firms. Findings revealed a positive and significant relationship between 

diversification strategies and business performance of food and beverages firms. 

Abuh and Echukwu (2020) examined the impact of diversification on the performance of Dangote 

Group of companies. Diversification was measured using product and market diversifications. The 

research elicited data from primary source while the respondents were reached using questionnaire. 

The data were analyzed using linear regression analysis. The findings revealed that diversification is a 

strategy for firms’ survival. In addition, diversification strategy increases market share of the 

organization as well as minimizing risk of operations. 

Njuguna, et al. (2018) investigated the influence of product diversification strategy on performance of 

forty-five (45) non-financial firms listed at the Nairobi Securities Exchange in Kenya. Descriptive 

correlational survey design was employed. Both primary and secondary data was collected. Secondary 

data was obtained from the audited annual reports of these companies for a period of five years (2011 

to 2015). The study established that there was a significant positive relationship between product 

diversification and firm performance. Regression analysis revealed that 15.2% of changes in firm 

performance were attributed to use of this strategy. 

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3.0. METHODOLOGY 

This study adopted the expost-facto research design. Time series data were culled from the Central 

Bank of Nigeria (CBN) Statistical bulletin (2022) and Nigerian Deposit Insurance Commission (NDIC) 

report. The study adopted the ordinary least squares (OLS) regression. Prequel to using the OLS to test 

the research hypotheses formulated earlier (in section one), the model was subjected to various pre-

estimation tests (such as descriptive statistics, correlation analysis, and normality test) and other 

diagnostic tests. This is with a view to ensure that the model is suitable for policy formulation. The 

modified model of Obaro, et al. (2022) was adopted for the study and stated as: 

OPEF= 𝛽0 + 𝛽1ASTD + 𝛽2 DEPD + 𝛽3 INVD + 𝛽4PROD + Ut …………………1 

 

 

 

 

 

 

Table 1: Operationalization of Research Variables  

Variable Proxies Measurement Reference Expected 

Sign 

Dependent 

Variable: 

Operational 

Resilience 

Operational 

Efficiency 

(OPEF) 

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐸𝑥𝑝𝑝𝑒𝑛𝑠𝑒
 

Eyamu, and 

Onuorah, 

(2024). 

Nil 

Independe

nt 

Variables: 

Portfolio 

Diversificatio

n Strategy 

Asset 

diversification 

(ASTD) 

1 - [[ Net Loans/Total 

Earning Assets ] 2 + [ Other 

Earning +Assets/Total 

Earning Assets]2 ] 

Kamagoba, 

and 

Irechukwu 

(2023). 

Positive 

Deposit 

diversification 

(DEPD) 

(demand/∑deposits)2 

+(savings/∑deposits)2 + 

(time/∑deposits)2 + 

(CDs/∑deposits)2 + 

(banks/∑deposits)2 

Onuorah, 

(2021).  

Positive 

Investment 

diversification 

(INVD) 

δp 2 = c1 2 δ1 2 + c2 2 δ2 2 + 

2c1c2δ1δ2 ρ Where; δ1 and 

δ2 are Standard Deviations 

of the two underlying assets, 

Obaro, et. 

al. (2022). 

Negative 

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C1 and C2, ρ is correlation 

between the assets, C1 and 

C2 are the respective 

proportions of the two assets 

in the portfolio. 

Product 

diversification 

(PROD) 

Average measurement of the 

product mix offered by 

sampled banks 

Obaro, et. 

al. (2022). 

Positive 

Source: Author’s Compilation (2025) 

4.0 RESULT AND DISCUSISONS 

Table 2: Descriptive Statistics 

 OPER ASTD DEPD INVD PROD 

 Mean  54.77333  0.039653  0.381227  0.542553  0.836467 

 Maximum  66.87000  0.310900  0.570900  0.861300  0.993300 

 Minimum  18.46000  0.001700  0.335500  0.500000  0.506700 

 Std. Dev.  15.00622  0.076198  0.071490  0.096727  0.201984 

 Observations  15  15  15  15  15 

Source: Author’s Compilation (2025) 

The descriptive statistics for Nigerian banks' operational resilience (OPER) reveal an average value of 

54.77 and standard deviation of 15.01, suggesting a moderate variation. The maximum value of 66.87 

reflects periods of stability and regulatory improvements, while the minimum value of 18.46 highlights 

the adverse effects of the 2008–2009 global financial crisis. The standard deviation of 15.01 indicates 

moderate variability. ASTD has a low mean of 0.0397, reflecting limited diversification efforts for much 

of the period. The maximum value of 0.3109 in 2022 indicates recent improvements, while the 

minimum of 0.0017 underscores earlier concentration in asset classes. A high standard deviation of 

0.0762 points to significant variability. DEPD shows a mean of 0.3812, reflecting relative consistency 

in banks' deposit mobilization strategies. The maximum value of 0.5709 in 2010 corresponds to 

aggressive efforts during the financial crisis, while the minimum value of 0.3355 occurred more 

recently. The standard deviation of 0.0715 indicates moderate variability. INVD has a mean value of 

0.5426, showing stability in investment strategies. The maximum value of 0.8613 in 2008 reflects 

higher risk-taking, while the minimum value of 0.5000 signifies a shift to safer investments. A standard 

deviation of 0.0967 indicates moderate variation. PROD stands out with the highest mean value of 

0.8365, reflecting consistent efforts by Nigerian banks to diversify their product offerings. The 

maximum value of 0.9933 in 2017 and 2018 marks peak diversification, while the minimum value of 

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0.5067 in 2010 represents limited product scope during challenging periods. The standard deviation of 

0.2020 suggests moderate variability.  

4.1 Correlation Analysis  

The correlation analysis tells the direction and degree of relationship between and among variables. 

Table 3 accounts for the correlation analysis: 

Table 3: Pearson Correlation Analysis 

 OPER  ASTD  DEPD  INVD  PROD  

OPER  1.000000     

ASTD  -0.339286 1.000000    

DEPD  -0.260714 -0.053571 1.000000   

INVD  -0.077475 -0.185940 0.337017 1.000000  

PROD  -0.148347 0.187936 -0.061305 -0.011793 1.000000 

Source: Author’s Compilation (2025) 

The result of the Pearson correlation analysis depicts negative relationship between OPER and ASTD 

(-0.3393), DEPD (-0.260714), INVD (-0.077475) and PROD (-0.148347). These negative relationship 

indicate an increase in operational resilience (OPER) will lead to a decline in ASTD, DEPD, INVD and 

PROD. The negative correlation implies that efforts to enhance operational resilience might come at 

the expense of further diversifying assets, banks not prioritizing expansion of their deposit base, paying 

less attention to diversifying their product offerings. 

Overall, these correlations show that operational resilience has weak to moderate negative relationship 

with the diversification strategies of Nigerian banks, suggesting that a focus on resilience may limit 

other diversification efforts, though the relationships are not strong enough to assert a definitive 

pattern. 

4.2. Regression Result and Discussions 

Table 4.7 present the main regression result having confirmed that the model is Homoskedastic, and 

devoid of Multicolinearity problem 

Table 4: Regression Estimate 

Dependent Variable: OPER   

Date: 01/16/25   Time: 06:19   

Sample: 2008 2022   

Included observations: 15   

Variable 

Coefficien

t Std. Error t-Statistic Prob.   

C 1.545100 0.221618 6.971914 0.0001 

ASTD 0.356640 0.099540 3.582887 0.0050 

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DEPD 0.590817 0.049744 11.877240 0.0000 

INVD 0.080841 1.456458 0.055505 0.9571 

PROD -0.341690 0.104027 -3.284634 0.0111 

R-squared 0.939370     Mean dependent var 54.77333 

Adjusted R-

squared 0.893898     S.D. dependent var 15.00622 

S.E. of regression 4.888018     Akaike info criterion 6.323937 

Sum squared resid 191.1418     Schwarz criterion 

6.65436

0 

Log likelihood -40.42953 

    Hannan-Quinn 

criter. 6.320417 

F-statistic 20.65810     Durbin-Watson stat 

2.04994

9 

Prob(F-statistic) 0.000184    

Source: Author’s Compilation (2025) 

From Table 4, the model reported an R-squared value of 93.94% suggesting that bank diversification 

strategies collectively explain a substantial proportion of variations in operational resilience. To further 

substantiate this, the study reported an adjusted R² value of 63.82%, indicating that the model explains 

a significant proportion of the variation in OPER. Additionally, the global statistics reveal that bank 

diversification proxies jointly affect banks’ operational efficiency significantly. Lastly, the Durbin-

Watson statistic of 2.049949 indicates that the model is not serially auto-correlated. These findings 

highlight that while diversification is essential for building resilience, focusing on specific areas, 

particularly deposit and asset diversification, is more effective, whereas caution is warranted in 

overextending product offerings. 

From the regression output, the coefficient of ASTD was 0.356640 with p-value of 0.0050, 

demonstrated a significant positive impact on operational resilience. This suggests that when banks 

diversify their assets across different categories or sectors, they reduce the risks associated with over-

concentration in specific asset classes. This finding underscores the importance of strategic asset 

allocation in ensuring long-term stability. This finding aligns with several studies that emphasize the 

importance of diversification in improving financial stability and managing risk. For instance, Obaro et 

al. (2022) found that asset diversification (ASTD) has a positive effect on bank performance. Similarly, 

Kamagoba and Irechukwu (2023) highlighted that diversified asset portfolios in Rwanda help lower 

portfolio volatility and improve financial performance, suggesting that asset diversification contributes 

to operational stability in banks. 

In the same vein, DEPD reported coefficient value of 0.590817 and p-value of 0.0000. This symbolizes 

a positive significant relationship between DEPD and OPER. This indicate that a well-diversified 

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deposit base is critical to maintaining operational stability. Diversification in deposits ensures that the 

banks are not overly reliant on any single source of funding, reducing vulnerability to sector-specific or 

regional economic downturns. This finding aligns with studies conducted by Agbesuyi et al. (2023) 

emphasizing that investment diversification, which includes managing a diverse deposit base, 

significantly improves financial performance. Also, Ayodele et al. (2023) found that deposit 

diversification had a positive effect on the financial performance of Nigerian banks. On the contrary, 

studies by Obaro et al. (2022) noted that deposit diversification (DEPD) had a negative effect. Also, 

Kamagoba and Irechukwu (2023) observed that diversification strategies in banks should be carefully 

managed, indicating that the benefits of deposit diversification may be contingent on factors such as 

market conditions and the nature of customer segments.  

INVD as reported in table 4, with a coefficient of 0.080841 and a p-value of 0.9571, shows positive but 

statistically insignificant relationship with operational resilience. This implies that diversifying 

investments alone may not directly contribute to the stability of a bank’s operations. The finding aligns 

with the findings of Agbesuyi et al. (2023) and Ayodele et al. (2023) but in contrast with the findings of 

Obaro et al. (2022) and Kamagoba and Irechukwu (2023). 

As indicated in table 4, PROD has a negative significant relationship with OPER. This indicates that 

excessive diversification into multiple product lines can be counterproductive, potentially diluting 

managerial focus, overextending resources, and introducing inefficiencies. The significant negative 

relationship between product diversification and operational resilience, with a coefficient of -0.341690 

and a p-value of 0.0111, aligns with the findings of Ezeana, et al (2024); Agbesuyi et al. (2023) and 

Amahalu et al. (2023) emphasize the importance of aligning diversification strategies with the core 

competencies of an institution to prevent operational strain. Studies such as Kollie (2024) and Ezeana 

et al. (2024) also found that while diversification can enhance performance, misaligned diversification 

strategies, such as expanding into non-core or unfamiliar product lines, can overwhelm management 

and operational resources, leading to decreased resilience. 

5.0. Conclusion and Policy Recommendations 

The findings from this study demonstrate that asset diversification and deposit diversification exert a 

significant positive effect on operational resilience, with deposit diversification having the highest 

impact. In contrast, investment diversification shows no significant effect, and product diversification 

exerts a negative but statistically significant effect, implying that an expanded product mix may 

introduce inefficiencies or vulnerabilities. While the study reveals a mixed effect of diversification 

strategies on operational resilience, it concludes that banks in Nigeria can benefit from strategic 

diversification, particularly in assets and deposits, to enhance their operational resilience. However, 

careful attention must be paid to product diversification to mitigate potential adverse effects. This 

underscores the importance of a balanced and well-planned diversification approach for optimal bank 

performance in Nigeria. 

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Arising from the findings of the study, we recommended that banks should continue to diversify their 

asset portfolios by investing in a variety of high-performing and low-risk asset classes. This can include 

a balanced mix of loans, securities, and other income-generating assets to enhance operational 

resilience and reduce exposure to specific risks. Also, Nigerian banks should focus on expanding their 

deposit base by introducing innovative products and targeting diverse customer segments, regions, and 

industries.  

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Impact Factor: 6.41 

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