CREDIT RISK MANAGEMENT AND DEPOSIT MONEY BANKS PERFORMANCE IN NIGERIA

ABSTRACT

This study empirically investigate the relationship between credit risk management and deposit money banks’ performance in Nigeria for the period 2009 to 2017. Three bank’s credit risks related factors (non-performing loans, loan loss provision and loan-to-deposit-ratio) were used as independent variables while return on assets (ROA) was employed as dependent variable in the study. The correlation coefficient were used to examine the background characteristics of the data set whiled the fully modified least squares (FM-OLS) regression was employed for the main econometric analysis. The results from the empirical analysis revealed that non-performing loans has significant negative relationship with deposit money banks’ performance. Loan loss provisions has significant positive relationship with deposit money banks’ performance in Nigeria. Bank size has significant negative impact on deposit money banks’ performance in Nigeria. The study recommends among others that, banks’ management should 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 bank profitability, affects the assets quality and increase loan losses and non-performing loan which will eventually lead to financial distress and bank failure.