Does credit risk management impact the financial performance of commercial banks
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Date
2023
Authors
Fadun, O. S. & Silwimba, P.
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Abstract
Commercial banks take deposits and lend for consumption and investment purposes. This study examined the impacts of credit risk management on the financial performance of commercial banks, using five (5) first-tier banks in Nigeria as a case study. Fifteen (15) years of panel data (2005 to 2019), extracted from the audited financial reports of five first-tier listed banks, was used for the study. All the banks used are Deposit Money Banks (DMBs) listed on the Nigerian Stock Exchange. This study used Non-performing loans (NPL) and the expected credit loss impairment provisions (ECL) as credit risk management indicators and Return on assets (ROA) as the financial performance indicator. The long-run co-integration results revealed that NPL negatively and significantly affects ROA in Nigeria, and ECL positively and substantially affects ROA in Nigeria. The findings suggest that credit risk management has insignificant positive impacts on the financial performance of commercial banks in Nigeria. The study recommends that banks undertake thorough credit risk assessments before giving out loans to ensure sound credit risk management, protect depositors' funds, avoid banks' distress, and enhance their profitability.
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Fadun, O. S. & Silwimba, P. (2023). Does credit risk management impact the financial performance of commercial banks? International Journal of Business Ecosystem & Strategy, 5(2), 55-66.