The Determinants and Consequences of Financial Fragility in Nigerian Deposit Money Banks: A Longitudinal Analysis

Financial fragility in banking systems refers to the structural vulnerabilities that amplify adverse shocks and render the system susceptible to crises, requiring a longitudinal and multi-dimensional theoretical framework to fully capture its determinants and macroeconomic consequences. This study develops a comprehensive theory of banking fragility for a frontier market context and applies it to Nigerian deposit money banks through a longitudinal empirical analysis spanning 1999 to 2023. The theoretical contribution is a banking fragility model that integrates five fragility dimensions: asset quality fragility, funding fragility, governance fragility, macroeconomic sensitivity, and regulatory enforcement adequacy, into a composite fragility index constructed using dynamic factor analysis. The empirical application uses a balanced panel of fifteen banks, supplemented by supervisory data obtained from the Central Bank of Nigeria through Freedom of Information Act requests. The study employs a hazard model to identify the fragility determinants that predict banking distress episodes, a threshold regression to detect non-linear fragility dynamics, and an instrumental variable vector autoregression to estimate the macroeconomic consequences of aggregate fragility shocks. The longitudinal span of the data encompasses two major distress episodes: the 2009 banking crisis and the 2016 to 2017 liquidity stress, providing historical validation for the fragility framework. The theoretical framework integrates the early warning systems literature, the banking crisis prediction methodology, and the institutional theory of bank failure. The PhD-level contribution lies in the multi-dimensional fragility conceptualisation, the longitudinal data construction, and the methodological integration of supervised and unsupervised machine learning with econometric estimation. Findings are intended for the Central Bank of Nigeria's Financial Stability Department and for the scholarly literature on banking fragility in emerging markets. Keywords: financial fragility, banking distress, deposit money banks, Nigeria, early warning system