Effect of Non-Performing Loan Ratio and Loan-To-Deposit Ratio on The Stability of Quoted Deposit Money Banks in Nigeria

Financial stability of deposit money banks is vital for economic development, given their central role in financial intermediation and capital mobilization. Over the years, the Central Bank of Nigeria (CBN) has introduced several prudential measures, including non-performing loan ratio and loan-to-deposit ratio, however, despite these measures, the banking sector continues to face challenges. This study examined the effect of non-performing loan ratio and loan-to-deposit ratio on the stability of quoted deposit money banks in Nigeria. An ex post facto research design and a longitudinal panel approach. Census sampling was used to select 13 quoted banking institutions with consistent financial reports for the period 2015–2024, resulting in 130 bank-year observations. Secondary data were obtained from the banks’ audited annual reports, Nigerian Exchange Group filings and relevant regulatory publications. Bank stability was measured using the Z-score. The data were analysed using panel regression analysis. The Hausman specification test supported the fixed-effects model. The findings revealed that Non-performing loan ratio had a negative and significant effect on stability while Loan-to-deposit ratio had a positive and significant effect on financial stability deposit money banks in Nigeria. The study concluded that sound asset quality and prudent deposit-funded lending are essential to the stability of quoted DMBs in Nigeria. The study recommended improved credit appraisal and loan monitoring, timely recognition of impaired facilities, and balanced management of loan-to-deposit ratios.