Social Finance Model and the Banks’ Financial Stability in Nigeria: Emphasis on Depositors’ Safety Net Banking Scheme

Abstract

This study examined the effect of social finance model affects the Nigerian banks’ financial stability from 2001 to 2021 with emphasis on depositors’ safety net banking scheme.  The depositors’ safety net banking scheme was measured by insured number of depositors, liquidation dividend, total bank deposits and total bank insured premium while bank z-score served as measure of banks’ financial stability. The study covered all the 23 quoted DMBs in Nigeria as at 31st December, 2021. Data for the study were sourced from both the Central Bank of Nigeria (CBN) Statistical Bulletins and the Nigeria Deposit Insurance Corporation financial reports for the period of this study from 2001 to 2021. The Robust least square estimation technique was used to run the analysis.  The study reported that, both number of deposits insured and the premium paid by banks for the insurance of their deposits improved banks’ financial stability meaningfully while total bank deposits only improve banks’ financial stability minimally. However, liquidation dividend reduced banks’ financial stability significantly throughout 2001 to 2021. Hence, the paper concludes that the NDIC has been very effective in ensuring increase in the number of depositors insured and has ensured prompt remission of premium by banks. As such, the NDIC should extend their coverage to non-bank financial institutions as this will ensure overall stability of the financial system. The study is the first of its kind in the Nigerian context to analyze the effect of NDIC operations on the financial stability of DMBs in Nigeria.

Keywords: Depositors’ Safety Net Banking Scheme, Banks’ Financial Stability, NDIC Operations.