Credit Risk Management and Deposit Money Banks Performance in Nigeria

ABSTRACT

The study examines the relationship between credit risk management and performance of twelve (12) deposit money banks in Nigeria for the period 2011 to 2019 (9 years). The objective of the study was to investigate whether banks’ credit risk management variables (capital adequacy ratio, non-performing loans, loans loss provision and loan-to-deposit-ratio) have significant effect on the performance of deposit money banks in Nigeria. The fully modified ordinary least square econometric technique was employed in the empirical analysis. The results derived from the analysis indicate that capital adequacy ratio and bank size play significant roles in the performance of deposit money banks in Nigeria.  They were found to have significant negative relationship with performance overtime. The other hypothesized variables in the model (non-performing loans, loans loss provision and loan-to-deposit-ratio) failed the 5 percent significance level, as they were not relevant in the determination of deposit money banks’ performance in the long run. The study recommends among others that, in order to prevent bank failure due to inadequate capital in the Nigerian deposit money banks, the Central Bank of Nigeria (CBN) should ensure banks maintain sufficient capital to cover scope of their activities. This will go a long way to ensuring that adequate capital is always available in banks from time to time and by so doing confidence will be sustained in the banking system and banks’ failure would be avoided.