CAPITAL MIX AND FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study looked at how the banking sector's capital composition affected its performance in Nigeria. The objectives of the study were to examine how debt-to-equity ratio affects credit to the private sector (CPS), and evaluate how debts-to-total assets relate to CPS in Nigeria. The study used annual data from 1960 to 2021, sourced from World Development Indicators. It adopted autoregressive distributed lag (ARDL), fully modify ordinary least square (FMOLS) and generalized method of moment (GMM).The results showed that effective management of debt finance can greatly increase private sector's access and availability to credit, which may in turn foster economic expansion. The CPS is positively impacted by both ratios of debt-to-equity and debt-to-total assets, and hence conclude that the crowding-out theory does not hold in Nigeria. The paper argues that tax benefits play a crucial role in driving the increased use of debt for credit provision. Policymakers should boost tax incentives for debt financing while ensuring robust risk management practices that prevent excessive leverage and maintain financial stability. Regulatory authorities, like Nigeria’s Central Bank (CBN), should set up guidelines that promote optimal leverage ratios, striking harmony between debt and equity to support long - term financial results.