Effect of Bank’s Financial Resilience Predictors on Economic Stability in Nigeria

Abstract

This study investigates the impact of banks’ financial resilience factors on Nigeria's economic stability from 1993 to 2022. Specifically, it analyzes the influence of capital adequacy, asset quality, management quality, bank liquidity, and the bank Z-score on the country’s economic stability. Data for this research were sourced from the Central Bank of Nigeria’s Statistical Bulletin (2022) and the World Bank Data Bank (2022). The study employed an ex-post facto research design, as the data used were secondary and historical in nature. To analyze the data, the Autoregressive Distributed Lag (ARDL) model was applied, given its ability to handle mixed data integration. Several diagnostic tests, including Multicollinearity, Heteroskedasticity, and the Ramsey Reset test, confirmed the model’s suitability for prediction. The regression analysis was conducted using Econometric Views version 9.0. The results showed that capital adequacy, management quality, and bank liquidity have a significant positive effect on Nigeria's economic stability. Conversely, asset quality and the bank Z-score demonstrated a significant negative effect. The study concludes that capital adequacy, management quality, and bank liquidity are positive predictors of economic stability. Based on these findings, the Central Bank of Nigeria is urged to ensure that all commercial banks adhere to capital adequacy standards. Additionally, regulatory authorities are advised to monitor banks' lending behaviors closely to prevent excessive risktaking that could jeopardize bank survival. This research contributes to the existing literature by proposing a comprehensive financial resilience model that can assist policymakers in evaluating the vulnerability of banks to potential crises.