Prudential Regulation and Bank Performance: Evidence from Capital Adequacy and Asset Quality

Tuuma; Dumka Kpodibabari; J.C Imegi; Adamgbo S.L.C

doi:10.56201/ijbfr.vol.12.no9.2026.pg98.107

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Prudential Regulation and Bank Performance: Evidence from Capital Adequacy and Asset Quality

Tuuma, Dumka Kpodibabari, J.C Imegi, Adamgbo S.L.C

Abstract

This study examines the effect of prudential regulation on the financial performance of commercial banks in Nigeria, with particular emphasis on capital adequacy and asset quality. An ex-post facto research design was adopted, using secondary data obtained from the Central Bank of Nigeria Statistical Bulletin. The study employed the Autoregressive Distributed Lag framework to capture both the dynamic and lagged effects of prudential regulatory indicators on bank performance. Return on Assets was used as the proxy for bank performance, while Capital Adequacy Ratio , Tier 1 Capital Ratio (TIER1), and Capital-to-Asset Ratio measured capital adequacy; Non-Performing Loan Ratio , Loan Loss Provision Ratio , and Loan-to-Total Assets Ratio captured asset quality. The findings reveal that capital adequacy produces mixed effects on bank performance. Specifically, CAR and TIER1 were not statistically significant, whereas CTA exerted a positive and significant effect on ROA. For asset quality, NPL and LLP had significant negative effects on ROA, while lagged NPL exerted a significant positive effect. LTA was positive but not statistically significant. The models were jointly significant and explained approximately 95.8% and 80.3% of the variations in ROA, respectively. The study concludes that effective asset quality management is particularly important for sustaining bank profitability, alongside maintaining adequate and efficiently deployed capital. It recommends stronger credit-risk management, prudent provisioning and balanced capital regulation to enhance both bank stability and profitability.

Keywords

Prudential regulationcapital adequacyasset qualitybank performancecommercial banksAutoregressive Distributed LagNigeria.

References

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Prudential Regulation and Bank Performance: Evidence from Capital Adequacy and Asset Quality

Abstract

Keywords

References

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