IIARD International Institute of Academic Research and Development

Journal of Business and African Economy (JBAE )

E-ISSN 2545-5281
P-ISSN 2695-2238
VOL. 11 NO. 4 2025
DOI: 10.56201/jbae.vol.11.no4.2025.pg76.87

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Stability of Banks in Nigeria: Role of Fair Value Accounting in the Financial Sector

Ihenyen, Confidence Joel; German, Woyengitarimi Rose; Edugo, Elaye

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Abstract

This study examined the role of fair value accounting in influencing the stability of banks in Nigeria, focusing on how the use of fair value in financial reporting affected non-performing loan ratios—an essential indicator of bank stability. A panel regression approach was employed using data from 14 listed commercial banks over a four-year period (2020–2023), resulting in 56 firm- year observations. Fair value accounting was operationalized using depreciation figures extracted from financial statements, while bank stability was measured by the non-performing loan ratio. Bank size, measured by total assets, served as a control variable. The regression results indicated a statistically significant negative relationship between fair value accounting and non-performing loan ratio (coefficient = –2.15E-12, p = 0.0206), implying that the adoption of fair value reporting contributed to enhanced bank stability by reducing the level of credit risk. Bank size also exhibited a statistically significant, though marginal, effect on stability (p = 0.0482). The model accounted for approximately 41% of the variation in bank stability (R² = 0.4098), and the overall model was statistically significant (F-statistic = 1.7358, p = 0.0076). These findings provided empirical evidence supporting the effectiveness of fair value accounting in promoting financial soundness within Nigeria’s banking sector, suggesting the need for strengthened compliance with fair value reporting standards.

keywords:

Fair Value Accounting, Bank Stability, Financial Reporting, Bank Size

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