Bank Recapitalization Policy and Financial Stability of Banks in Nigeria: A Longitudinal Analysis (2004–2024)

Abstract

This study investigates the effect of bank recapitalization on the financial stability of Nigerian deposit money banks between 2004 and 2024. Using an ex-post facto research design and balanced panel data from ten banks, the study employs fixed-effects regression with cluster-robust errors, complemented by random-effects diagnostics and difference-GMM estimation. Capital adequacy is found to exert a positive and significant influence on financial stability, while nonperforming loans and bank size negatively affect performance. Recapitalization phases do not independently predict stability once bank-specific fundamentals are accounted for, suggesting that reforms strengthen stability indirectly through improved capital buffers rather than through the recapitalization event itself. The findings highlight the critical role of asset quality and prudent capital management in sustaining bank resilience. The study contributes to policy discussions by showing that recapitalization must be complemented with stronger supervisory enforcement and risk-management practices to achieve lasting financial stability.