The Role Of Deposit Money Banks In Economic Growth In Nigeria

ABSTRACT

The relevant goal of this study was to empirically examine the relationship between credit risk management and financial performance of deposit money banks in Nigeria for a period of 9 years (2009 to 2017). The rationale for the study was based on the realization that credit risk is one of the most sensitive exposures facing the financial performance of any deposit money banks in the world today. Failure to effectively mitigate its adverse effect, will spell doom for the banks. Descriptive statistics and correlation coefficient were used to examine the background characteristics of the variables. The panel data analysis econometric technique was employed for the main analysis of the study. The findings from the empirical analysis, on the basis of the fixed effect indicate that nonperforming loans and bank size have significant negative impact on the banks ’financial performance in Nigeria. While capital adequacy, loan loss provision and liquidity ratio does not have significant impact on banks ’financial performance in Nigeria. The study recommends among others that; management needs to be cautious in setting up a credit policy that can be strongly linked with profitability in the banks. Management also needs to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits and maximization of profit. Improper credit risk management reduces the bank profitability, affects the quality of its assets and increase loan losses and nonperforming loans which may eventually lead to financial distress. Also, management should not solely concentrate on the profit maximization concept but should also adopt measures that will ensure effective liquidity management. These measures will help to minimize or avoid cases of excessive variation in banks’ liquidity position.