Effect of Non-Performing Loans, Capital Adequacy on Bank Stability in Nigeria

This study investigates the effect of Non-Performing Loans (NPLs) and Capital Adequacy on the stability of commercial banks in Nigeria. Utilizing a quantitative research approach, the study focused on eight (8) commercial banks with international authorization listed on the Nigerian Stock Exchange as of December 2022, representing a stratified sample of licensed deposit money banks in the country. Both descriptive and inferential statistical techniques were employed in analyzing the data, with STATA software used for inferential analysis. The findings reveal that Non-Performing Loans have a negative but statistically insignificant impact on bank stability, while Capital Adequacy has a positive and statistically significant effect. Based on these findings, the study recommends that bank management should ensure accurate classification and reporting of loan portfolios, in line with established accounting principles. Furthermore, it emphasizes the importance of maintaining an adequate capital base to enhance resilience against market risks, ensure liquidity, and protect against insolvency. These measures are essential for sustaining the financial health and operational efficiency of commercial banks in Nigeria.