Abstract
This study examined the role of fair value accounting in influencing the stability of banks in
Nigeria, focusing on how the use of fair value in financial reporting affected non-performing loan
ratios—an essential indicator of bank stability. A panel regression approach was employed using
data from 14 listed commercial banks over a four-year period (2020–2023), resulting in 56 firmyear observations. Fair value accounting was operationalized using depreciation figures extracted
from financial statements, while bank stability was measured by the non-performing loan ratio.
Bank size, measured by total assets, served as a control variable. The regression results indicated
a statistically significant negative relationship between fair value accounting and non-performing
loan ratio (coefficient = –2.15E-12, p = 0.0206), implying that the adoption of fair value reporting
contributed to enhanced bank stability by reducing the level of credit risk. Bank size also exhibited
a statistically significant, though marginal, effect on stability (p = 0.0482). The model accounted
for approximately 41% of the variation in bank stability (R² = 0.4098), and the overall model was
statistically significant (F-statistic = 1.7358, p = 0.0076). These findings provided empirical
evidence supporting the effectiveness of fair value accounting in promoting financial soundness
within Nigeria’s banking sector, suggesting the need for strengthened compliance with fair value
reporting standards.