DEPOSIT INSURANCE AND LENDING BEHAVIOUR OF LISTED DEPOSIT MONEY BANKS IN NIGERIA: A CONTROL VARIABLE OF BANK SIZE

Objective: The study examined the effect of deposit insurance on lending behaviour of quoted deposit money banks in Nigeria from 2015-2023. It is underpinned by the Hands-on theory of deposit insurance. Deposit insurance was proxied by deposit insurance coverage and bank size was used as a control variable while lending behavior was proxied by loan-to-deposit ratio. Theoretical Framework : The data was sourced from the individual audited financial reports of the listed Deposit Money Banks (DMBs) in Nigeria. The study adopted the sample of thirteen (13) listed Deposit Money Banks in Nigeria. Method: The study employed regression model to estimate the relationship between the variables of the study and determine the effect of deposit insurance on lending behaviour of listed DMBs in Nigeria. Results and Discussion: The results revealed that deposit insurance coverage had a negative significant effect on loan-to-deposit ratio of listed DMBs in Nigeria. While bank size had insignificant effect on loan-to-deposit ratio of listed DMBs in Nigeria. Implications of the Research: The study recommended that Nigeria Deposit Insurance Corporation (NDIC) should carefully calibrate coverage levels to strike a balance between depositor protection and credit supply. Originality/Value: One possible approach is to tweak the risk-based deposit insurance premiums computation template to assign higher weight to non-performing loans, where banks with riskier loan portfolios pay higher premiums. This would reduce moral hazard while still protecting depositors and preventing overly conservative lending that may stifle credit growth.