DEPOSIT INSURANCE AND LENDING BEHAVIOUR OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Objective: The study examined the effect of deposit insurance on lending behaviour of quoted Deposit Money Banks (DMBs) in Nigeria from 2015-2023. Deposit insurance was proxied by capital adequacy ratio (CAR) and premium rates while lending behavior was proxied by loan-to-deposit ratio. Theoretical Framework: The study was underpinned by the Hands-on theory of deposit insurance. Deposit insurance is supposed to contribute to the maintenance of banking system stability as one of the safety net arrangements. Method: The data was sourced from the individual audited financial reports of the listed DMBs in Nigeria. The study adopted the census approach, in which all the fourteen (14) listed DMBs in Nigeria were involved. Regression model was employed to estimate the relationship between deposit insurance and lending behaviour of listed DMBs in Nigeria. Results and Discussion: The results revealed that CAR had a positive significant effect on loan-to-deposit ratio of listed DMBs in Nigeria. While premium rates had insignificant effect on loan-to-deposit ratio of listed DMBs in Nigeria. Implications of the Research: The study recommended that the Central Bank of Nigeria should maintain and refine capital adequacy requirements in ways that encourage healthy capital buffers without restricting credit growth. Originality/Value: Measures such as countercyclical capital buffers and enhanced stress testing should be integrated to ensure resilience across economic cycles. Also, since the deposit insurance premium rate is risk based, the Nigeria Deposit Insurance Corporation should deepen the implementation of the methodology by assigning a higher weight to capital adequacy. Allowing greater variation in premium rates based on risk profiles will improve incentives for prudence, help reduce latent moral hazard, and improve the effectiveness of deposit insurance as a safety net mechanism within the financial system.