EFFECT OF CREDIT RISK MANAGEMENT ON THE FINANCIAL PERFORMANCE OF SELECTED DEPOSIT MONEY BANK IN NIGERIA

Abstract

The study evaluated the effect of credit risk management on financial performance of selected deposit money bank in Nigeria from 2000 to 2023. The objectives include to: evaluate the effect of non-performing loan on return on asset of the selected deposit money bank in Nigeria, examine the effect of provision for bad debt on return on assets of the selected deposit money bank in Nigeria and investigate the effect of loan loss provision on return on assets of the selected deposit money banks in Nigeria. The data utilized for this work was extracted from annual report of access bank. The study adopted pre-test estimation of descriptive statistics, unit root test, cointegration test to ensure that the data set is stationary and fit for the analysis. Long-run relationship was estimated after the presence of cointegration was identified. Auto-Regressive Distributed Lag Model (ARDL) method of analysis was adopted for the estimation while Heteroskedasticity Test, Breusch-Godfrey Serial Correlation LM Test, Ramsey RESET Test, Cumulative sum and Cumulative sum square were utilized for post-test estimation. The study revealed that non-performing loan in short-run result showed that the finding is negative but statistically insignificant at a confidence of 5% level while in long-run, non-performing loan for the period of this study had positive and insignificant impact on return on asset. Secondly, provision for bad debt in short-run result showed that the finding is positive but statistically insignificant at a confidence of 5% level while in long-run, provision for bad debt for the period of this study had positive but insignificant impact on return on assets. Thirdly, loan loss provision in short-run result showed that the finding is positive and statistically insignificant at a confidence of 5% level in long-run, loan loss provision for the period of this study had positive but insignificant impact on return on assets. The study concludes that credit risk management had positive but insignificant on financial performance of selected deposit money bank in Nigeria. This study recommends among others that monetary authorities should include adequate policy to ensure repayment of loan and use of collateral and guarantees to secure loans and reduce potential losses.