EFFECT OF NON-PERFORMING LOANS (NPLS), CAPITAL ADEQUACY (CA) AND CORPORATE GOVERNANCE (CG) ON BANK STABILITY IN NIGERIA

Abstract

The study examined the effect of Non-Performing Loans (NPLs), Capital Adequacy, Corporate Governance on Bank Stability in Nigeria from 2006-2021. Ten (10) commercial banks represent the sample size for this study. This study made use of secondary data obtained from annual reports and accounts of the Deposit Money Banks under study and NDIC annual report and accounts. The independent variables used are Non-performing loans ratio, capital adequacy ratio while corporate governance was further decomposed into Internal Control (INTC) and External Control (EXTC) and the dependent variable is bank stability measured by Z-score. Data were presented using descriptive statistics, multicollinearity test, validity test, panel unit root test, cointegration test, and correlation matrix. Multiple regression analysis was used to analyze the data with the aid of E-Views version 9.0. The result of this study revealed that Non-Performing Loans Ratio (NPLR), Capital Adequacy Ratio (CAR) and Internal Control (INTC) has a positive and insignificant effect on Z-Score of listed deposit money banks in Nigeria while External Control (EXTC) has a negative and significant effect on Z-Score of listed deposit money banks in Nigeria at 5% level of significance. The study conclude that non-performing loans, capital adequacy and corporate governance has a positive insignificant effect on bank stability in Nigeria. This study recommends that regulatory and supervisory authorities should monitor banks closely to ensure that banks comply with the corporate governance codes so as to achieve bank stability. Keywords: Non-Performing Loans, Capital Adequacy, Internal Control, External Control.