Al-Hikmah University Journal

The bank's unique qualities and the effects of the Global Financial Crisis is the major source of bank fragility. The study attempts to determine how bank-specific factors affected the stability of commercial banks in Nigeria. This was accomplished by analyzing how factors such as bank size, competitiveness, net interest margin, and funding structure affected bank financial stability as measured by composite risk index. The study used secondary data from annual reports and accounts from five of Nigeria's largest commercial banks (FUGAZ; First bank, United Bank for Africa, Guaranty Trust Bank, Access Bank, and Zenith Bank) between 1997 and 2019. The study was anchored on prospect theory, adopted ex-post factor research design and used Panel Autoregressive Distributed Lag method of estimation. The study found that bank size and funding structure increase the level of instability in the banking sector while NIM reduces commercial bank's instability. The study therefore, recommends that bank should constantly ensure portfolio rebalancing in the area of their funding strategy, especially with heavy reliance on core deposits which translates into low cost of funds. Regulators should adopt the “living will” methodology to contain moral hazard problems accentuate by bank size. The study also recommends optimal asset allocation of resources.