Systemic Risk, Interconnectedness, and Financial Stability in the Nigerian Banking Sector: A Network Analysis Approach

This study applies financial network analysis methodology to examine systemic risk, interbank interconnectedness, and financial stability in the Nigerian banking sector, providing novel insights into the structural vulnerabilities of Nigeria's systemically important financial institutions. Systemic risk, the risk that the failure of one institution triggers cascading failures across the financial system, has become a central concern for banking regulators globally following the 2008 global financial crisis. In Nigeria, the 2009 banking crisis demonstrated the systemic consequences of interconnected bank distress. This study constructs a bilateral interbank exposure network for the Nigerian banking system using supervisory data obtained from the Central Bank of Nigeria, supplemented by balance sheet data from listed bank annual reports for the period 2015 to 2023. Network topology measures including degree centrality, betweenness centrality, clustering coefficient, and contagion susceptibility are computed. Systemic risk is measured using CoVaR, Marginal Expected Shortfall, and network contagion simulation models. Panel regression links network position metrics to bank-level financial fragility indicators. Results identify four Nigerian banks as systemically important network hubs whose failure would trigger contagion affecting over 60 percent of system assets. Interconnectedness has increased significantly since 2018, driven by interbank lending market development. The study contributes an original Nigerian banking network dataset and systemic risk measurement methodology, recommending that the CBN integrate network contagion analysis into its macro-prudential supervisory framework.

Keywords: systemic risk, interbank network, Nigerian banking, CoVaR, financial stability.