Effect of Non-Compliance with the Central Banks Regulations on the Sustainability of Micro Finance Banks in Nigeria

This study examined the effect of non-compliance with Central Banks regulations on the sustainability of Microfinance Banks in Nigeria. Ex-post facto research design was adopted to define the structure and strategy of the study, while the target population was all the Microfinance banks license by Central Bank to operate in Nigeria as at 31st December, 2023 which were 20 in number. Out of the 20 banks 14 were purposively chosen based on their complete annual reports and accounts over the period of the study (2019-2023). Panel regression analysis was used to analyze the collected data, and the results shows a positive and significant effect of capital adequacy requirement, liquidity ratio requirement, and cash reserve requirement on returns on assets of the banks. However, unsecured lending limit revealed a negative but significant effect on returns on assets of the banks. Therefore, the study concluded that: non-compliance with the Central Banks Regulations has significant effect on the sustainability of licensed Microfinance banks in Nigeria. This signifies that, having adequate capital funds, maintaining an appropriate liquidity position with sufficient cash reserve invested in Treasury bill as required by Central Bank would improve banks profitability, thus guarantee sustainability of Microfinance banks. Therefore, this study recommends that; the management of licensed Microfinance banks in Nigeria should maintain capital funds adequacy of not less than ten percent of capital to risk weighted assets ratio, and also maintain adequate liquidity in turn of not less than twenty percent of depositors’ amount, while investing not less than five percent of total deposit in treasury bills. Furthermore, the banks should pay adequate attention on unsecured loans by not giving out unsecured loan facility of more than fifty thousand Naira. Doing these would help to improve banks profitability and subsequently guarantee banks sustainability.