DETERMINANTS OF CREDIT RISK AMONG DEPOSIT MONEY BANKS IN NIGERIA.

ABSTRACT

This study was conducted to investigate the determinants of credit risk among deposit money banks in Nigeria. The sample of this study consisted of the thirteen (13) deposit money banks listed in the Nigeria Stock Exchange as at Dec 31st 2019. This study concurrently investigated governance, accounting and economic factors as possible determinants of credit risk among Deposit Money Banks in Nigeria. Panel data spanning 11 years (2009-2019) were sourced and subjected to various statistical and empirical testing to check for background characteristics of the data set and capture the relationship between NPL, Accounting Macroeconomics and Corporate governance variables. The Panel unit root and panel co-integration test were used to this effect, while the Generalized Methods of Moments (GMM) was devised to capture the rich dynamics between the variables. Findings from the GMM estimate revealed that accounting factors (lagged non-performing loan, return on asset and liquid ratio) had a significant impact on non-performing loans of deposit money banks, while capital adequacy ratio (CAR) was found to have no significant impact on non-performing loan. Economic factors (unemployment, inflation and gross domestic product) were found to have had a significant impact on non-performing loans of deposit money banks during the period of study, while corporate governance factors (audit committee independence and board independence) had a significant impact on non-performing loans of deposit money banks during the period of study. However, board composition and board size had no significant impact on non-performing loan. From the result findings, the study concluded that accounting factors (return on asset & liquidity ratio), corporate governance factors (audit committee independence and board independence), and economic factors (unemployment, gross domestic product and inflation) all have a significant impact on the levels of non-performing Loans among deposit money banks in Nigeria. On recommendation, the study recommended that banks management must ensure that they implement a sound methodology that facilitates the identification, measurement, monitoring and control of liquidity levels since it can affect non-performing loans. On the other hand, unemployment rate must be tamed by providing financial empowerments programs, skills acquisition workshops to empower the masses, while audit committees be made even more independent as this will allow for more transparency and detection of financial malpractices that can fuel non-performing loans.