EFFECT OF CAPITAL STRUCTURE ON FINANCIAL STABILITY OF DEPOSIT MONEY BANKS IN NIGERIA

A critical element of capital structure is the adequacy of a bank’s capital to absorb potential losses and comply with regulatory standards. In Nigeria, the issue of capital structure emerges when deposit money banks struggle to maintain adequate capital levels, leading to heightened financial risk and potential instability. These banks often grapple with a high volume of non-performing loans and credit risk management challenges, which adversely affect their capital structure and overall financial stability. Consequently, this study examines the effect of capital structure on the financial stability of deposit money banks in Nigeria between 2014 and 2023. An ex-post facto research design was adopted, thirteen listed banks were selected. Panel data were utilized with the use of panel regression of pooled/fixed and random effect model with inference been made at 5% significant level. The findings showed that the Capital Structure was statistically significant on Capital Adequacy Ratio of deposit money banks in Nigeria (R-square = 0.1982, F-statistic = 3.5545 (0.000)). Similarly, the result affirmed that Capital Structure was statistically significant on Return on assets of deposit money banks (R-square 0.2512, F-statistic- 4.4670 (0.000)). Finally, Findings showed that the Capital Structure was statistically significant on Non-performing Loan Ratio of deposit money banks in Nigeria (R-square-0.1016, F-statistic- 6.8486 (0.000)). The study concludes that Capital Structure ratios have significant effect in determining the financial stability of deposit money banks in Nigeria. As regards the empirical fining of the study, the study recommended that banks Deposit money banks should strategically manage their leverage by optimizing long-term debt financing, ensuring it is used for productive investments that enhance capital buffers. Regulatory authorities should also monitor the quality of long-term liabilities and debt-equity structures to promote sustainable financial stability across the banking sector Word count: 286 Keywords: Capital Adequacy Ratio, Debt to Equity Ratio, Return on Assets, Non-performing Loan Ratio