MODERATING EFFECT OF CAPITAL ADEQUACY ON THE RELATIONSHIP BETWEEN FINANCIAL RISKS AND FINANCIAL PERFORMANCE OF MFBS IN NIGERIA

Abstract

This study is focused on the moderating effect of capital adequacy on the relationship between financial risk and financial performance. In order to establish the relationship between financial risk and financial performance of MFBs in Nigeria secondary data was collected covering the period of seven years from 2014 to 2020. The study focused on National MFBs. Descriptive and panel regression analysis was employed to establish relationship between financial risks and financial performance of MFBs in Nigeria. Result of the regression analysis shows that the moderated relationship between capital adequacy and credit risk, and liquidity risk, was found to be negative and significant. This clearly shows that the interaction between the capital adequacy on credit risk and liquidity risk is significantly impacting the financial performance of National MFBs in Nigeria. Same can be said of the moderating effects of capital adequacy ratio on liquidity risk and interest rate risk. While the moderated relationship between capital adequacy ratio and interest rate risk was found to be negative but insignificant which shows that the interaction between capital adequacy and interest rate risk does not have significant impact on financial performance of MFBs in Nigeria.