Effect of Risk Management on Financial Stability of Quoted Deposit Money Banks in Nigeria

Abstract

The study examined the effect of risk management on financial stability of quoted deposit money banks (QDMB) in Nigeria, with particular emphasis on credit risk management and market risk management. Using an ex-post facto research design, secondary data were collected from the thirteen (13) QDMB over the period 2015 – 2024. The study employed a dynamic panel estimation using the Generalised Method of Moments (GMM) to address endogeneity, unobserved heterogeneity, and autocorrelation, ensuring robust and consistent results. The findings revealed that credit risk management has a significant negative effect on financial stability, indicating that higher credit exposures, such as non-performing loans, undermine bank stability. In contrast, market risk management showed a positive but statistically insignificant effect suggesting that while market risk controls are important, they do not directly enhance financial stability under the observed conditions. The study concluded that robust credit risk management is critical for maintaining financial stability and that market risk practices should be integrated with governance mechanisms to maximise their impact. Consequently, it is recommended that banks should encouraged to enhance credit assessment, monitoring, and reporting processes, while regulators should provide clearer disclosure guidelines to improve transparency and strengthen investor confidence in Nigeria’s banking sector.