Effect of risk management on the financial stability of quoted commercial banks in Nigeria

Abstract

The study examined the effect of risk management on the financial stability of quoted commercial banks in Nigeria, with a focus on credit, market, operational, and liquidity risk management. Using a dynamic panel data approach, the study analyzes data from 150 observations across listed banks to determine how different risk management influence financial stability, measured through capital adequacy, asset quality, liquidity ratios, and earnings performance. The lagged financial stability variable is included to account for the persistence of past performance on current stability outcomes. The results indicate that past financial stability positively and significantly affects current stability, highlighting the cumulative nature of bank performance. Credit risk management and operational risk management exhibit negative and statistically significant effects on financial stability, suggesting that inadequate credit assessment, high non-performing loans, and weak operational controls undermine banks’ financial resilience. Conversely, market risk management shows a positive and significant effect, indicating that effective management of interest rate and foreign exchange exposures strengthens stability. Liquidity risk management, though positive, is not statistically significant, implying that its influence may depend on specific institutional and macroeconomic conditions. Based on these results, the study recommends strengthening credit and operational risk frameworks, adopting proactive market risk strategies, continuous risk monitoring, and reinforcing regulatory oversight. These measures can enhance banks’ resilience, protect depositor funds, and promote the stability of the Nigerian banking sector