Real Estate Market and Banks Financial Stability in Nigeria: The Role of Economic Conditions

This study investigates the impact of the real estate market on the financial stability of banks in Nigeria, with a focus on the moderating role of economic conditions. Using an Autoregressive Distributed Lag (ARDL) model, the analysis covers key variables such as the Real Estate Price Index (REPI), Non-Performing Loans (NPLs), Loan-to-Value Ratio (LTV), interest rates, and Gross Domestic Product (GDP), with financial stability index (FSI) as the dependent variable. The results reveal that increases in real estate prices significantly enhance bank financial stability both in the short run (0.045%) and long run (0.120%), as rising property values strengthen the collateral base. Conversely, higher NPLs negatively affect stability, with a greater impact in the long run (-0.088%). The LTV ratio positively contributes to bank stability, while rising interest rates have a destabilizing effect in both the short (-0.015%) and long run ( 0.030%). GDP plays a crucial role, with higher economic growth improving financial stability by up to 0.180% in the long run. The error correction term indicates that 55% of short-term deviations are corrected annually, reflecting a swift adjustment to economic changes. These findings underscore the importance of real estate price movements and economic conditions in shaping bank stability in Nigeria.