Non-Bank Financial Institutions and Systemic Risk in Nigeria’s Financial Sector

Non-bank financial institutions including pension funds, insurance companies, investment funds, finance companies, and microfinance banks collectively represent a growing share of Nigeria's financial sector assets, yet their contribution to systemic risk remains incompletely measured and inadequately regulated relative to the deposit money bank sector. This study assesses the systemic risk contribution of non-bank financial institutions in Nigeria and examines the channels through which systemic stress could transmit from this sector to the broader financial system. Secondary data on asset sizes, leverage ratios, interconnectedness, and liquidity profiles of non-bank financial institutions are assembled from the Central Bank of Nigeria, the National Pension Commission, and the Securities and Exchange Commission for the period 2017 to 2022. The study applies the conditional value-at-risk measure, the marginal expected shortfall, and network analysis to quantify systemic risk contribution and map interconnections between non-bank financial institutions and deposit money banks. The theoretical framework draws on macro-prudential risk theory, the shadow banking literature, and the systemic risk measurement methodology developed in the post-global financial crisis regulatory literature. The study evaluates whether Nigeria's current regulatory perimeter for non-bank financial institutions is commensurate with their systemic footprint. Existing literature on Nigerian financial sector risk has focused predominantly on deposit money banks, leaving the non-bank sector largely unmapped from a systemic risk perspective. This study fills that gap and provides findings relevant to the Financial Stability Committee of the Central Bank of Nigeria, the National Insurance Commission, and the Securities and Exchange Commission. Keywords: non-bank financial institutions, systemic risk, Nigeria, macro-prudential, shadow banking