Credit Risk Management and Profitability in Selected Deposit Money Banks in Nigeria (2008 – 2014)
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Date
2016
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Abstract
The study examined the trend of profitability in deposit money banks in Nigeria. It also determined the influence of credit risk management on profitability of the banks in Nigeria and examined the effect of capital adequacy ratio on profitability of Nigerian Banks. These were with a view to providing information on how credit risk management affects profitability of deposit money banks in Nigeria.
Data were collected from secondary sources for this study. It considered 2008-2014, because it covers pre-crisis period, crisis period and post crisis period. A sample of 15 quoted deposit money banks out of the 21 listed on the Nigerian Stock Exchange (NSE) were purposively selected for the study based on availability of complete data covering the sample period. Data on variables such as Non-Performing Loan, Loans and Advances and Capital Adequacy Ratio were sourced from the Nigerian Stock Exchange (NSE) Factbook and Financial Statements of Banks. Descriptive statistics such as mean, median, maximum, minimum, standard deviation etc and also inferential statistics such as pool ordinary least squared with fixed effect and random effect were used.
The results of the trend of profitability showed that nine banks namely Access, Diamond, Fidelity, First Bank, GTB, Skye, Stanbic, Standard Chartered, and UBA did not experience any decrease at any point in the year from 2008 to 2014 on return on equity while Sterling, Union, Unity, Wema and Zenith had a fluctuating increase and decrease on return on equity between 2008 to 2014. The result of Influence of Credit Risk Management and Effect of Capital Adequacy Ratio on Profitability of Nigerian Banks showed that Non Performing Loan Ratio (NPLR) has significant negative effect on Return on Equity (ROE) of the deposit money banks (coefficient=-0.364, t = 3.844, p < 0.05). Loans and Advances (LA) has significant negative effect on the Return on Equity (ROE) of deposit money banks in Nigeria (coefficient=-0.257, t = 0.813, p < 0.05), Capital Adequacy Ratio (CAR) showed significant negative effect on the ROE of the deposit money banks in Nigeria (coefficient=-0.080, t = 0.78, p < 0.05 respectively). This result shows that credit risk management is not adequately manage in the deposit money bank in Nigeria, as its measuring variables (Non Performing Loan Ratio (NPLR), Capital Adequacy Ratio (CAR) and Loan & Advance (LA) are significant and have negative impact on profit.
The study concluded that credit risk management practice is inadequate in deposit money banks profitability in Nigeria. Therefore it is important for deposit money bank to subjecting credit risk to rigorous process of control and management.
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xii,87p
Keywords
Credit Risk, Financial Industry, Credit Risk Management, Banks, Nigeria