Macro Stress Testing in the Nigerian Banking Sector: Excerpts into Banking Sector Performance Analysis

The Central Bank of Nigeria constantly conducts routine macro stress tests on the Nigerian banks such as liquidity ratio and capital adequacy tests, to assess the strength of the nation's banks. However, due to the preponderance of fiscal fragility ostensibly attributable to falling oil prices, dwindling external reserves and fiscal policy uncertainties in the country; there is the need to ascertain the sustenance of the resilience of banks in their operations. This book examines macro stress testing in the Nigerian banking sector in the post-consolidation period from 2004-2015. Using the Ordinary Least Square (OLS) method, the work estimates the long run relationship between bank performance and corresponding macroeconomic risk elements; while parsimonious Error Correction Mechanism (ECM) is used to estimate the short-run dynamics. The book adopts the bottom-up approach to stress management. The analysis provides relevant information on financial sector’s stability, the proclivity of the behaviours of macroeconomic variables and the inherent risks in the Nigerian banking institutions. This book will benefit policy makers, stakeholders, foreign investors and general banking public.

Adesoji O. FARAYIBI, M. Sc: Studied Economics at University of Ibadan and University of Ilorin, Nigeria. Director, Centre for Allied Research and Economic Development (CARED), Ibadan, Nigeria. His research interests include: Development, Monetary, Energy, and Health Economics. He has publications in both local and international journals.