Quantum Computing and Financial Risk Modeling of Deposit Money Banks in Nigeria
NWAOKOCHA, Onyemalechi Kat, and EHIEDU, Victor C, PhD
Abstract
This study investigated the influence of quantum computing proxies such as Operational Risk Loss Ratio (ORLR), Value-at-Risk Accuracy (VARA), Expected Credit Loss (ECL), and Capital Adequacy Ratio (CAR) on financial risk modeling of Nigerian deposit money banks (DMBs), proxied by the Portfolio Diversification Index (PDI), over the period 2015–2024. An ex-post facto research design was adopted, utilizing secondary data from Central Bank of Nigeria Financial Stability Reports, NDIC Annual Reports, and IFRS-compliant financial statements of fifteen purposively selected banks. Data were analyzed using panel regression techniques in E-Views 9.0, with fixed and random effects, unit root and Pedroni cointegration tests, and Hausman specification for robustness. Findings revealed that ORLR and ECL both carried positive but statistically insignificant effects on PDI, suggesting operational and credit risks were absorbed through governance and regulatory frameworks rather than influencing diversification. Conversely, VARA exhibited a significant positive impact on PDI, indicating that accurate measurement of risk was crucial for effective asset allocation and diversification. Similarly, CAR demonstrated a significant positive effect, underscoring that capital strength enhanced diversification strategies and systemic resilience. The results aligned with Modern Portfolio Theory (MPT) and Risk Management Theory (RMT), which highlighted diversification, risk quantification, and capital adequacy as central drivers of stability. The study concluded that while operational and credit risks remained important for regulatory oversight, only accurate risk measurement and adequate capital buffers directly influenced financial risk modeling outcomes in Nigerian banks. Recommendations included strengthening governance to manage ORLR, adopting advanced predictive tools to improve VARA, maintaining transparency in provisioning under ECL, and ensuring
Keywords
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