CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA: 2003-2016
Authors:
Okonkwo, Ikeotuonye Victor And Nwokeji, Miracle Ifeanyi
Abstract:
This study examined the relationship between credit risk management and the financial performance of deposit money banks (DMBs) in Nigeria. There has been concern for improved commercial banks performance with a view of sustaining the growth potentials in Nigeria economy. Some financial reforms have been executed and yet threats of distress and bank failure looms. This work aimed at determining the effect of credit default risk and concentration risk on the return on assets of DMBs in Nigeria. The independent variables of this study are: Non-performing loans, non-performing loans to total loans ratio, non-performing loans to shareholders’ the fund, loan to deposit ratio and Herfindahl Hirschman index. Secondary data were sourced from the Central Bank of Nigeria statistical bulletin and Nigerian Deposit Insurance Corporation. Ordinary least square (OLS) regression model was used for model estimation. The results showed that credit default risk has significant effect on the return on assets of Deposit Money Banks in Nigeria; credit concentration risk has significant effect on the return on assets of Deposit Money Banks in Nigeria; there is no significant relationship between Non-performing Loans and the Return on assets of Deposit Money Banks in Nigeria; loans to deposit ratio has significant effect on the return on assets of Deposit Money Banks in Nigeria; credit default risk in terms of non-performing loans to total loans has a positive significant effect on the profitability of Deposit money banks. The study recommends among others that the credit risk managers and officers should be adequately trained and retrained on regular basis on state of art technology on credit assessment and review and to imbibe the discipline of integrity and conscientiousness; and that the job of the credit officers should be guaranteed and protected from unscrupulous and selfish bank managers.