Credit risk management in Nigerian banking industry

Summary

This study examines credit risk management in Nigerian banking industry by means of a panel least squares regression analysis. The study finds that: 1. Non-performing loan (NPL), the proxy for credit risk is negatively and significantly related to bank performance (as measured by profit after tax). That is, credit risk has negative and significant effect on banks profitability. 2. Liquidity ratio (LIQ) is negatively related to banks performance (PAT). That is, low liquidity has negative effect on banks performance, profitability. This suggests that low liquidity may lead commercial banks to incur high costs of securing funds to meet cash withdrawal needs of customers, while high liquidity results in opportunity cost to deposit money banks. 3. The relationship between leverage (LEV), and banks profitability (BPROF) is not statistically significant.