Sustainable Banking and Bank Stability in Nigeria: Empirical Evidence from Deposit Money Banks

Olusola Enitan Olowofela (), Hermann Azemtsa Donfack and Celestin Wafo Soh
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Olusola Enitan Olowofela: Department of Finance and Investment Management, College of Business and Economics, University of Johannesburg, Johannesburg 2092, South Africa
Hermann Azemtsa Donfack: Department of Finance and Investment Management, College of Business and Economics, University of Johannesburg, Johannesburg 2092, South Africa
Celestin Wafo Soh: Department of Finance and Investment Management, College of Business and Economics, University of Johannesburg, Johannesburg 2092, South Africa

JRFM, 2025, vol. 18, issue 4, 1-22

Abstract: We investigated the impact of sustainable banking practices on bank stability in the Nigerian banking sector. We focused on data from 2012 to 2022, which were extracted from the balance sheets of deposit money banks in Nigeria. We employed the Dynamic Ordinary Least Squares (DOLS) estimator with E-Views to analyze the data. Our findings show that environmental emissions and waste reduction have minimal effects on bank assets, capital adequacy, and liquidity, though they do not directly cause financial instability. Investments in environmental innovation reduce asset growth and increase liquidity constraints but lower non-performing loans, emphasizing a trade-off between sustainability and stability. Environmental resource use efficiency remains neutral regarding asset stability and capital adequacy but poses liquidity challenges. Social welfare investments have little impact on asset growth and profitability, potentially reducing financial stability. Human resource development improves capital adequacy and liquidity strengthening bank stability, while community investments aid societal growth but create liquidity pressures. Macroeconomic factors like GDP growth and inflation are significant, yet economic growth does not always increase bank assets, whereas inflation increases non-performing loans. Sustainable banking in Nigeria is evolving; therefore, there is a need for robust regulation, financial incentives for compliance, a high level of awareness, and alignment between banking operations and sustainability principles.

Keywords: sustainability; financial stability; banking (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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