MODERATING EFFECT OF RISK-BASED SUPERVISION ON THE RELATIONSHIP BETWEEN FIRMS RISKS AND PERFORMANCE OF LISTED FINANCIAL SERVICE FIRMS IN NIGERIA

Nigerian financial firms have been recording recurrent failure over the years. This was largely due to the inability of institutions to proactively manage the inherent risks related to business operations. However, the implementation of Risk-Based Supervision (RBS) approach was aimed at curtailing the ceaseless failure. This study examined the moderating effect of RBS in strengthening the relationship between firms' risk and performance of financial firms in Nigeria. The study used a longitudinal research design in exploring the moderating effect of RBS in curtailing the effect of firm risk determinants measured by credit risk, liquidity risk, operational risk, solvency risk, capital adequacy risk, market risk, and foreign exchange risk on the financial service firms' performance. Secondary data obtained from the annual financial statements of the firms for the periods of 2012-2019 were used in the analysis. The study utilized panel data regression model to estimate the relationship. As for the interacting effects, the study revealed negative and significant moderating effects of RBS in the relationship between credit risk, liquidity risk, solvency risk, capital adequacy risk, foreign exchange risk, and performance; and insignificant positive moderating effects of RBS in the relationship between operational risk and market risk were documented. The study concluded that Risk-Based Supervision moderated the relationship between firm risks and the performance of financial service firms in Nigeria. The study recommended that financial regulators should continue to offer greater emphasis in understanding and assessing the quality of the firms' risk management system in line with the firms' strength to identifying, measuring, monitoring and controlling risks exposure within a timely and appropriate manner in line with the RBS requirements.