Diversification and Financial Stability of Selected Deposit Money Banks in Nigeria

A stable financial system efficiently allocates resources; manage financial risks and supports productive sectors of the economy for growth and development. Evidence from research showed that deposit money banks are faced with decrease in capital adequacy, asset quality, management capacity, earning and liquidity, which affected their financial stability. Evidence from literature showed that deployment of diversification (income diversification, asset diversification. fund diversification) and control variables (bank size and board size) can ensure effective financial stability of the banks, which they are yet to fully integrate into their operations. This study examined the effect of diversification on financial stability of selected deposit money banks in Nigeria. The study adopted ex-post facto research design. The population of the study comprised all the 19 deposit money banks listed on the Nigerian Stock Exchange Limited (NGX) as at 31st December, 2023. Purposive sampling technique was used to select a sample of 15 listed deposit money banks. Data were extracted from audited annual reports and accounts of the sampled banks for a period of 15 years (2009-2023). Reliability of data was premised on certification of the regulatory authorities and the auditors. Data were analysed using descriptive and inferential (multiple linear regression) statistics at 5% level of significance. The result showed that diversification measures had joint significant effect on capital adequacy (Adj. R2 = 0.02, F(5,234) = 14.12, p < 0.05), asset quality (Adj. R2 = 0.036, F(5,234) =7.69, p < 0.05) of  selected deposit money banks in Nigeria. The study concluded that diversification strategies enhanced the financial stability of deposit money banks in Nigeria. The study recommended that the management of deposit money banks should formulate and implement relevant diversification strategies that uphold the desired financial performance.