Effect of Credit Risk on the Performance of Listed Deposit Money Banks in Nigeria

Abstract

The study examined the effect of credit risk on the performance of listed deposit money banks in Nigeria using panel data collected from the audited annual financial statements of thirteen listed DMBs in Nigeria for a period of 2012-2018 using Ex-post facto research design and thirteen listed DMBs in Nigeria form the sample size. Furthermore, the study employed Generalized Least Squares (GLS) method of Panel Regression, Fixed and Random Effects in its estimations with the aid of STATA Software Version 14. The study found that all the measures of credit risk (NPL, LLPR, LAR, and CAR) have significant negative effect on profitability of DMBs in Nigeria measured by ROA and ROE respectively. Based on the findings of the study, the study recommends that Listed DMBs should have comprehensive credit risk management procedures that will cover the formulation of an overall credit strategy for managing problem credits, and a credit risk management framework which will serve as a tool for monitoring and controlling risk inherent in individual credit as well as banks credit portfolios.