Green Monetary Policy and Financial Stability: An Empirical Analysis of Climate-Related Financial Risks in Nigeria

The study examined green monetary policy and its effects on financial stability in Nigeria, focusing on climate-related financial risks. The study was designed to examine the effects of the green credit ratio, green asset purchases by the central bank's green asset purchases, the climate-related monetary policy index, and the GDP growth rate on the stability of Nigerian banks, as measured by the bank Z-score. Secondary data were analysed using descriptive statistics, correlation analysis, and fixed-effects panel regression, following a quantitative, ex post facto design and panel data econometrics. The findings show that the green credit ratio has a positive and significant impact on financial stability. This means that the more banks lend to sustainable sectors, the more stable those sectors become. Central banks’ purchases of green assets also helped to provide stability, indicating that green financial instruments enhance liquidity and resilience. Also, GDP growth rate had a positive and significant effect, indicating that macroeconomic growth helps bank performance. On the other hand, the climate-related monetary policy index had a significant negative effect, suggesting that weak regulatory systems, data infrastructure, and implementation capacity could undermine stability. The study concluded that well-designed and harmonised green monetary policies can improve Nigeria’s financial stability. Recommendations included: expanding green lending, phasing in green asset purchases, strengthening climate risk disclosure, improving green taxonomies, and enhancing collaboration among monetary, fiscal, environmental, and financial regulators.