Financial stability determinants in Nigeria: role of profitability, capital regulation, financial inclusion, inflation, unemployment and economic growth

Peterson K Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the determinants of financial stability in Nigeria. The two-stage least squares regression and fully modified ordinary least squares (OLS) regression methods were used to estimate the determinants of financial stability in Nigeria from 2002 to 2021. The findings reveal that banking sector return on asset, regulatory capital ratio, the level of financial inclusion, economic growth, inflation and the total unemployment rate are significant determinants of financial stability in Nigeria. Return on asset and the rate of unemployment have a significant positive impact on financial stability. The regulatory capital ratio, the level of financial inclusion, economic growth and inflation have a significant negative impact on financial stability in Nigeria. The implication of the findings is that high bank profitability (or high return on asset), low regulatory capital ratio and low inflation are crucial for financial stability in Nigeria. The results suggest that policymakers in Nigeria should use a mix of macroprudential and macroeconomic policy tools to ensure that banks remain profitable, maintain a minimum regulatory capital ratio and operate in a low inflation and low unemployment environment in order to preserve financial stability in Nigeria.

Keywords: financial stability; return on assets; regulatory capital ratio; financial inclusion; economic growth; inflation; unemployment; efficiency; Nigeria; determinant; capital regulation. (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 O43 O47 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/125792/1/MPRA_paper_125792.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125792

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().