Title: Bank Credit And Its Influence On Financial Stability In Nigeria
Authors: Efemiemie Vivian And Ehiedu, Victor C Ph.D
Volume: 9
Issue: 5
Pages: 157-171
Publication Date: 2025/05/28
Abstract:
his study investigates the influence of bank credit on financial stability in Nigeria, with a particular focus on how Total Bank Credit (TBC), Credit to Private Sector (CPS), Loan to Deposit Ratio (LDR), and Credit to GDP Ratio (CGDPR) affect the Capital Adequacy Ratio (CAR) of Deposit Money Banks (DMBs). The study adopts a quantitative methodology using an ex-post facto research design and covers the period from 1999 to 2023. Secondary data were sourced from the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), World Bank financial indicators, and the audited reports of selected DMBs. A purposive sampling technique was employed to select banks with consistent financial records over the 25-year study period. Using Ordinary Least Squares (OLS) regression analysis, the study evaluates the statistical significance and direction of influence of each independent variable on CAR, employing diagnostic tests such as the Augmented Dickey-Fuller test for stationarity, Johansen cointegration test for long-run relationships, and tests for multicollinearity, heteroskedasticity, and autocorrelation. Findings reveal that TBC exhibits a negative but statistically insignificant effect on CAR, suggesting that credit volume alone does not guarantee bank stability without prudent risk management. CPS also shows a negative relationship, weakly significant at the 10% level, implying potential risk from overexposure to the private sector. LDR and inflation rate both show insignificant effects, indicating inefficiencies in credit deployment and a negligible direct impact of inflation on capital adequacy. The low R-squared value and insignificant F-statistic underscore the need to explore other determinants of financial stability. These findings contribute to the ongoing discourse on the quality versus quantity of credit in enhancing banking stability in emerging economies like Nigeria.