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The Financial Risk Determinants in the Nigerian Deposit Money Banks: An Evidence Analysis (2010–2022)

Author(s) Dr. Abiodun Oyebamiji Oladejo, Mr. Ayodele Solomon Odu, Mr. Peter Temitope Okedun
Country Nigeria
Abstract Financial risk management has been an issue of major concern in the Nigerian banking industry especially following the world financial shocks and the changing regulatory environments. The environment in which the Nigerian Deposit Money Banks (NDMBs) operate is very volatile and as such, management of credit, liquidity, market and capital risks is critical to operating stability and profitability in the long term. To enhance banking resilience and effectiveness in enforcement, it is thus required to examine the determinants of financial risk. In the study, ex post facto research design was used to determine the causative factors of financial risk in the banking sector in Nigeria. The secondary data were obtained by accessing the annual financial statements and the Central Bank of Nigeria (CBN) reports on the period 2010 to 2022 on selected NDMBs. The stratified sampling technique was used in order to capture the diversity of NDMBs, and 20 banks were sampled purposively. The year 2010 was selected as the base year because the year was the time when global financial crisis was over and new risk and governance policies were adopted. Descriptive statistics and panel regression with the pooled and random effects model were used to analyse the data. The result of the random effect model indicates that bank size (SIZE) demonstrated positive and significant effect on credit risk (CRR) of the bank with coefficient value of 0.437 which is statistically significant (p-value = 0.016). Results of pooled effect model showed return on asset (ROA) with coefficient value of 0.041 and probability of 0.019, bank leverage (LEV) have a coefficient value of 0.000 with probability of 0.049. Liquidity risk (LQR) have a negative coefficient value of 0.092 and probability of 0.036, return on equity (ROE) (coefficient = 0.012 and probability = 0.035), bank age (AGE) (coefficient = 0.003 and probability = 0.050), while ROE had a significant negative effect on capital adequacy ratios (CAR) with negative coefficient value of 0.015 and probability of 0.048, SIZE (coefficient = 0.806 and probability = 0.023). Both ROA and LEV exhibited significant negative effect on cost-income ratios (CIR) with negative coefficient values of 0.228 and 0.001, probability of 0.047 and 0.05 respectively, also LEV and AGE have significant negative effect on the total regulatory capital (TRC) with negative coefficient values of 0.000 and 0.003 with probability of 0.046 and 0.037 respectively. The study concludes that ROA, ROE, CRR, MKR, LQR, CAR, TRC, CIR, LEV, SIZE, and AGE are capable of impacting risk management efficiency and profitability of banks. The study recommends that NDMBs are encouraged to have sufficient capital base and liquid assets in their balance sheet, this will guarantee long-term stability, a sound cash management and limit the risk burden arising from economic shocks and other exigencies. Also, DMBs should deploy modern technology and automation tools that will improve cost management efficiencies.
Keywords Credit Risk, Market Risk, Liquidity Risk, Capital Adequacy Ratio, Total Regulatory Capital, Nigerian Deposit Money Banks
Field Sociology > Banking / Finance
Published In Volume 7, Issue 2, March-April 2026
Published On 2026-03-23
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