Financial Soundness Indicators in Nigeria: Does Economic Condition Matters?
DOI:
https://doi.org/10.14738/abr.81.7595Keywords:
FSIs, Banking sector, financial crisis, ARDLAbstract
The growing concern amongst analysts, economists, and policy makers on the interrelationship between the soundness of the financial system and the macro-economy is gradually being confirmed by both theoretical and empirical studies. This study is an attempt to join the strand of literature that investigates the link between the soundness of the banking sector and macroeconomic performance using Nigeria’s quarterly data from 2007Q1 to 2018Q4. The study applied autoregressive distributed lag approach and found among others that FSIs are strongly related to macroeconomic variables, hence capable of pre-empting financial crisis in Nigeria. The study, therefore, recommends that movements in macroeconomic variables should be used by the Central Bank of Nigeria to take proactive supervisory policy measures to avert a systemic crisis in the banking sector.
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[16] Sere-Ejembi, A., Udom, I. S., Audu, S., Atoi, N. V. and Yaaba, B. N. (2014). Developing a Banking System
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[17] Shahbaz, M., Aamir Shamim, S. M. & Aamir, N. (2010). Macroeconomic Environment and Financial Sector’s
Performance: Econometric Evidence from three Traditional Approaches. The IUP Journal of Financial Economics, VIII (1 & 2), pp 103-123.
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of Economic and Social Sciences (NJESS), 54(1), pp 69-91.
[19] Yaaba, B. N. (2013). Monetary Policy Rule: A Broad Monetary Conditions Index for Nigeria. CBN Journal of
Applied Statistics, 4(1), pp 35-53.
[20] Yaaba B. N. & Adamu, I. (2015). Financial Soundness Indicators: The Case of Nigeria, The CBN Bullion. 39(4),
pp. 3-14.
[21] Yaaba B. N. (2016). Financial Soundness Indicators and Macroeconomic Variables: An Empirical Investigation
of the Dynamic Linkages. The CBN Bullion, 40(1), pp 9-20.
Journal of Economics and Sustainable Development, 4(14), pp.1-11.
[2] Albulescu, C. T. (2014). Banks’ Profitability and Financial Soundness Indicators: A Macro-Level Investigation in
Emerging Countries. Procedia Economics and Finance 23, 203 – 209.
[3] Adrian, T., He, D., Liang, N. and Natalucci, F. (2019). Monitoring Global Financial Stability, available at
https://blogs.imf.org/2019/08/26/monitoring-global-financial-stability/
[4] Babihuga, R. (2007). “Macroeconomic and Financial Soundness Indicators: An Empirical Investigation”, IMF
Working Paper No. 2007/115.
[5] Claessens, S. & Kodres, L. (2014). The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable
Questions. International Monetary Fund, Working Paper, WP/14/46.
[6] Creel, J., Hubert, P., & Labondance, F. (2015). Financial stability and Economic Performance. Economic
Modelling, 48, 25-40.
[7] Demirgüç-Kunt, A., and Detragiache E. (1998). The Determinants of Banking Crises in Developing and Developed
Countries. Staff Papers, International Monetary Fund, Vol. 45, No. 1, pp. 81-109.
[8] Das, U. S., Quintyn, M. & Chenard, K. (2004). Does Regulatory Governance Matter for Financial System
Stability? An Empirical Analysis. IMF Working Paper No. 04/89.
[9] Dhal, S., Kumar, P., & Ansari, J. (2011). Financial Stability, Economic Growth, Inflation and Monetary Policy
Linkages in India: An Empirical Reflection. Reserve Bank of India Occasional Papers, 32(3), 1-35.
[10] Harris, R. and R. Sollis (2003). Applied Time Series Modelling and Forecasting. West Essex Wiley.
[11] International Monetary Fund (2006): Financial Soundness Indicators: Compilation Guide, March.
[12] Jahn, N. & Kick, T. (2012). Determinants of Banking System Stability: A Macro-Prudential Analysis. BIS
Working Paper.
[13] Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bound Testing Approaches to the Analysis of Level Relationship.
Journal of Applied Econometrics. John Willey and Sons Ltd
[14] Morley, J. (2015). Macro-Finance Linkages, Journal of Economic Surveys, 30(4), 698–711.
[15] Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of Banks’ Profitability: Evidence from EU 27 Banking
Systems. Procedia Economics and Finance, 20, 518-524.
[16] Sere-Ejembi, A., Udom, I. S., Audu, S., Atoi, N. V. and Yaaba, B. N. (2014). Developing a Banking System
Stability Index for Nigeria. CBN Journal of Statistics, 5(1), pp 49 – 77.
[17] Shahbaz, M., Aamir Shamim, S. M. & Aamir, N. (2010). Macroeconomic Environment and Financial Sector’s
Performance: Econometric Evidence from three Traditional Approaches. The IUP Journal of Financial Economics, VIII (1 & 2), pp 103-123.
[18] Yaaba B. N. (2011). “Financial Soundness Indicators: Can we use them to avert Banking Crisis? Nigerian Journal
of Economic and Social Sciences (NJESS), 54(1), pp 69-91.
[19] Yaaba, B. N. (2013). Monetary Policy Rule: A Broad Monetary Conditions Index for Nigeria. CBN Journal of
Applied Statistics, 4(1), pp 35-53.
[20] Yaaba B. N. & Adamu, I. (2015). Financial Soundness Indicators: The Case of Nigeria, The CBN Bullion. 39(4),
pp. 3-14.
[21] Yaaba B. N. (2016). Financial Soundness Indicators and Macroeconomic Variables: An Empirical Investigation
of the Dynamic Linkages. The CBN Bullion, 40(1), pp 9-20.
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Published
2020-01-28
How to Cite
Nmadu, Y. B., Yakubu A., B. ., Audu, S., Ibrahim, H., Idrisa, A. G., & Usman B., F. (2020). Financial Soundness Indicators in Nigeria: Does Economic Condition Matters?. Archives of Business Research, 8(1), 202–217. https://doi.org/10.14738/abr.81.7595
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