Assessment of Financial Sector Regulatory Compliance and its Impact on Banking Sector Stability in Nigeria

Regulatory compliance in the Nigerian financial sector is enforced by multiple agencies including the Central Bank of Nigeria, the Securities and Exchange Commission, and the Nigeria Deposit Insurance Corporation, and its aggregate impact on banking sector stability requires professional evaluation. This study assesses the relationship between financial sector regulatory compliance levels and banking sector stability in Nigeria for the period 2015 to 2022. Secondary data were obtained from Central Bank of Nigeria banking supervision annual reports, Nigeria Deposit Insurance Corporation annual reports, and individual bank compliance scorecard publications. Banking sector stability was measured by the aggregate Financial Soundness Indicators including capital adequacy ratio, non-performing loan ratio, return on assets, and liquidity ratio. Compliance was measured by aggregate regulatory sanction frequency, Know Your Customer compliance scores, and anti-money laundering filing rates. Regression analysis was employed using banking system-level panel data. Results showed that periods of higher aggregate regulatory compliance were associated with lower non-performing loan ratios (coefficient = -0.41, p < 0.05) and higher aggregate capital adequacy ratios (coefficient = 0.28, p < 0.05). Regulatory sanction frequency negatively predicted system stability with a one-year lag. The study concludes that financial sector regulatory compliance is a significant predictor of banking system stability in Nigeria, and recommends risk-based supervision to prioritise enforcement resources on systemically important institutions. Keywords: regulatory compliance, banking sector stability, financial soundness indicators, Central Bank of Nigeria, Nigeria