International Banking, External Reserves, Sovereign Debt, and Cross-Border Lending Risk: Evidence and Policy Implications for Nigeria

The relationship between the banking, external reserves, the quantity of sovereign debt and cross border lending risk in Nigeria was discussed in the paper. The new opportunities and threats of the emerging economies as the world financial markets become more globalised are compelling scientists to consider the impact of different macroeconomic variables in order to define their impact on the risk of lending. It entailed using Autoregressive Distributed Lag (ARDL) model to come up with a correlation between the different variables both in the short-run and in the long-run depending on the data between 2000 and 2024. The empirical results satisfy the following; all the long-term correlated risks are the international banking, external reserves and sovereign debt and cross-border lending risk. The positive impact of the study results which suggest that financial integration and greater size of the public debt is more perilous to the financial system is a major constructive contribution towards the cross-border lending risk in international banking and sovereign debt. A buffer of stabilization taking place in the form of one avenue of the utilisation of external reserves absorbs external shocks. The analysis observes that in addition to inflation the majority of the key macro-economic factors that lead to the lending risk are the exchange rate depreciation. In the current paper, a complex, macro-financial model is presented, which presupposes the impact of the international financial relations and local economic factors on the cross-border lending risk in Nigeria. The paper provides practical policy implications that underlie in the need to control the banking activities across the borders, introduce responsible practices of debt management, sufficient reserves buffer and achieve the macroeconomic stability.