Navigating Risks, Driving Performance: Unveiling The Impact of Risk Management Strategies in Nigerian Financial Institutions

  • Ademola Adeniran ADEWUNMI Federal Polytechnic Ile-Oluji, Ondo State, Nigeria.
  • John Ayodele ADEKAMBI Bamidele Olumilua University of Education, Science and Technology, Ikere-Ekiti
  • Amaka Abiola FELIX Federal Polytechnic Ile-Oluji, Ondo, Nigeria
Keywords: Risk Management; Bank Performance; Nigerian Financial Institutions; Panel Data Analysis; Financial Stability

Abstract

This study uses panel data regression analysis to investigate how risk management methods affect Nigerian banks' financial performance. Using panel data from ten financial institutions listed on the Nigerian Stock Exchange between 2014 and 2023, In order to assess the impact of operational risk (as measured by the cost-to-income ratio), credit risk (as measured by the non-performing loan ratio), liquidity risk (as measured by the liquidity coverage ratio), and leverage (as measured by the loan-to-deposit ratio) on bank profitability, as measured by return on assets (ROA) and return on equity (ROE), the study uses panel regression analysis, which includes pooled OLS, fixed effects, and random effects models.  Purposive sampling is the method employed, focussing on banks with reliable data availability.  While correlation results demonstrate that aggressive lending and greater operational expenses lower asset returns, descriptive analysis reveals that banks are generally moderately profitable.  While the impacts on ROE differ per institution, regression findings show that CIR and LTDR have a substantial and negative impact on ROA across all models.  The significance of bank-specific features is demonstrated by the Hausman test, which verifies the random effects model.  The results show that in order to increase profitability, Nigerian banks must have strong risk management procedures.  To maintain financial stability, it is advised that banks concentrate on cutting operational inefficiencies and credit risks while regulators bolster monitoring.

Published
2025-05-30