ASSET QUALITY OF DEPOSIT MONEY BANKS IN NIGERIA: THE FINANCIAL LEVERAGE IMPACT
Keywords:
Asset Quality, Financial Leverage, Debt-Equity Ratio, Debt to Total Assets RatioAbstract
This study explored the impact of financial leverage on the asset quality of deposit money banks in Nigeria. Specifically, the objective was to examine the impact of debt-equity ratio and debt to total assets ratio on the asset quality of deposit money banks in Nigeria. The secondary data covering the period of the study were sourced from annual reports of the Nigerian Bureau of Statistics (from 2000 to 2022) and the Central Bank of Nigeria (CBN) Statistical Bulletin (2022). The ordinary least square was adopted to examine the relationship between the independent variable and the dependent variable to show the signal of prediction and the significance of this prediction. The findings revealed that debt to equity ratio negatively and significantly impacts asset quality in Nigeria. This indicates that increase in the proportion of debt to equity causes a decrease in the asset quality of deposit money banks in Nigeria. The study recommends that increase in debt of the bank should be buffered with commensurate increase in the equity in order to keep debt equity ratio as low as possible so as to improve the quality of assets of the banks in Nigeria.
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