This study explores the impact of debt management strategy on the performance of banks in Nigeria. The specific objectives of the study were to examine the extent to which the levels of domestic debt, external debt, and debt services affect banks’ return on assets (ROA) in Nigeria. The study utilized secondary time series data, obtained from the CBN for a twenty-five-period period from 2000 to 2024, which was analyzed using the Auto Regressive Distributed Lag (ARDL) model. The results reveal that the independent variables determine 34.7% of the variation in ROA. However, only debt servicing was found to exert a statistically significant effect on ROA. In contrast, both domestic and external debt levels had an insignificant impact on bank performance in Nigeria, with external debt having a negative effect. Thus, Nigeria’s public debt management strategy has not been too instrumental to bank performance in Nigeria. It is recommended that the government focus on utilizing domestic resources to fund its projects, as domestic debts can be managed more effectively to enhance bank performance. In addition, the government should prioritize debt-service management by closely monitoring the debt-service-to-total-debt ratio to harness its immediate positive impact.

Public Debt Management, Bank Performance in Nigeria, Debt Servicing Impact, Return on Assets (ROA), Debt Sustainability in Nigeria

In conclusion, the issue of high public debt burden has sparked significant theoretical and empirical debate, with some arguing that debt positively impacts bank performance, while others suggest the opposite. This study aimed to examine the relationship between public debt strategies and bank performance in Nigeria, focusing on domestic debt, external debt, and debt servicing, and their influence on banks’ return on assets (ROA). By reviewing conceptual, theoretical, and empirical literature, and analyzing secondary data from the Central Bank of Nigeria (CBN) spanning 2000 to 2024 using advanced econometric tools, the study reached several key findings. The results showed that the independent variables account for 34.7% of the changes in ROA, and the F-statistics of 3.4 with a p-value of 0.023 suggest a good model fit. However, t-statistics indicate that only debt servicing has a significant effect on ROA, while domestic and external debt levels have insignificant impacts on bank performance in Nigeria. From the analysis, it was concluded that previous profitability (ROA lag), domestic debt level (DD/GDP), and external debt level (ED/GDP) do not significantly affect the financial performance of banks. In contrast, the current debt service-to-debt burden ratio (TDS/TDBT) positively and significantly influences ROA, while its one-period lag negatively impacts bank performance. This suggests that while an increase in the debt service burden today boosts bank performance, a high debt burden from the previous period reverses this gain. Ultimately, Nigeria’s public debt management strategy has not produced the desired effects on the banking sector’s performance.

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