Published February 23, 2026 | Version v1
Journal article Open

Regulatory Frameworks and Financial Stability of Nigerian Banks: An Empirical Investigation of Basel III and CBN Regulations on Capital Adequacy and Non-Performing Loans

  • 1. ROR icon Nigerian Defence Academy

Description

The global financial crisis of 2007–2009 exposed profound vulnerabilities in banking systems worldwide, precipitating a wave of regulatory reform epitomized by the Basel III Accord and its domestic adaptations. In Nigeria, the Central Bank of Nigeria (CBN) has progressively aligned its prudential guidelines with international best practices, yet the empirical nexus between these regulatory frameworks and bank-level financial stability remains insufficiently explored. This study investigates the effect of regulatory frameworks—operationalized through Basel III capital requirements and CBN prudential regulations—on the financial stability of Nigerian deposit money banks, measured by capital adequacy ratio (CAR) and non-performing loan ratio (NPLR). Employing an ex-post facto research design and panel regression methodology on an unbalanced panel of 14 deposit money banks spanning 2010 to 2024, the study controls for firm size, profitability, leverage, growth opportunities, age, and liquidity. Results from the fixed-effects and random-effects estimations, adjudicated by the Hausman specification test, reveal that Basel III-aligned capital requirements exert a significant positive effect on capital adequacy while significantly reducing non-performing loans. CBN regulatory intensity similarly reinforces financial stability, though its effects are moderated by bank-specific characteristics. Firm size and liquidity are significant positive determinants of both stability proxies, while leverage exerts a destabilizing influence. The findings underscore the critical importance of regulatory compliance architecture in sustaining bank resilience and offer actionable policy insights for regulators, bank managers, and policymakers in Nigeria and analogous emerging economies.

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