An Assessment Of Credit Risk And Financial Performance Of Deposit Money Banks In Nigeria

The recent cases of bank failure and financial crises in Nigeria call for assessment of credit risk of Deposit Money Banks. This study empirically assesses the effects of credit risk and financial performance of deposit money banks in Nigeria. The period covered by the study is 2005-2014 while the population of the study comprises of all Deposit Money Banks in Nigeria. Credit risk measures used in the study include liquidity ratio, non-performing loan ratio, risk weighted capital ratio and provisions for non-performing loan ratio while return on asset was used as proxy for financial performance. Using aggregate banking data, multiple regression analysis was employed to examine the relationship between credit risk and financial performance of Deposit Money Banks. Results of the study show that the relationship between non-performing loans and financial performance of deposit money banks in Nigeria is negative and statistically significant. The study however found a positive relationship between provision for non-performing loan and financial performance although not statistically significant. The study therefore recommends stricter banking regulation and supervision by the regulatory authorities by ensuring good corporate governance through increasing transparency of records and accounts of deposit money banks in Nigeria thus improving credit risk management.