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2026-01-30
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Copyright (c) 2026 Owolabi, Olasunkanmi Femi, Jegede, C. A. , Fakunmoju, S. K.
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Credit Derivatives And Bank Survival In Nigeria: Evidence From Deposit Money Banks
Prof. Jegede, Charles Ayodele
Department of Finance, Lagos State University, Ojo, Lagos, Nigeria.
Fakunmoju, Segun Kamoru PhD
Department of Finance, Lagos State University, Ojo, Lagos, Nigeria.
Owolabi, Olasunkanmi Femi
Department of Finance, Lagos State University, Ojo, Lagos, Nigeria.
Keywords: Credit derivatives, Bank survival, Capital adequacy ratio, Deposit money banks, Nigeria
Abstract
The increasing complexity of financial markets has intensified the use of credit derivatives as tools for managing credit risk among banks. While these instruments are designed to enhance risk transfer and financial stability, empirical evidence on their effectiveness in promoting bank survival remains mixed, particularly in developing economies. This study investigates the effect of credit derivatives on bank survival in Nigeria, using capital adequacy ratio (CAR) as a proxy for survival. Employing an ex-post facto research design, panel data were obtained from fourteen tier-one and tier-two deposit money banks over the period 2011–2023. Credit derivatives are proxied by credit default swaps (CDS), collateralized debt obligations (CDO), and total return swaps (TRS), while bank size and ownership concentration serve as control variables. Fixed-effects panel regression with robust standard errors is employed following diagnostic and specification tests. The findings reveal that credit default swaps exert a positive and statistically significant effect on capital adequacy, suggesting that CDS usage enhances bank resilience through effective credit risk transfer. Bank size and ownership concentration also significantly improve capital adequacy, whereas collateralized debt obligations and total return swaps exhibit positive but statistically insignificant effects. The study concludes that not all credit derivative instruments contribute equally to bank survival in Nigeria. Policy implications emphasize the need for enhanced regulatory oversight and improved risk governance frameworks to ensure that credit derivatives are employed prudently to strengthen the stability and survivability of the Nigerian banking system.