Determinants of Financial Stability in Deposit Money Banks in Nigeria

Abstract

The study empirically investigated the determinants of financial stability in Deposit money banks (DMBs) in Nigeria. Specifically, the study examined the effect of loan ratio and capital ratio on financial stability of banks in Nigeria. The study employed research ex-post facto research design and selected eight (8) deposit money banks over a panel of fifteen years ranging from 2013 to 2017. The study proxied return on asset as a measurement of financial stability while the credit ratio and capital ratio were proxy for lending activities and capital base of banks in Nigeria. The study applied panel regression estimates and discovered that both loan ratio and capital ratio have significant implications on bank stability. Therefore, the study concluded that loan ratio and capital ratio are the main determinants of bank stability in Nigeria. The study recommended that management of banks should ensure that they are liquid at all times to enable the bank facilitate more credit advances to creditworthy customers in order to ensure soundness and stability of the bank via income through interest rate on loan.