EFFECT OF CREDIT RISK MANAGEMENT ON THE PROFITABILITY OF COMMERCIAL BANKS IN NIGERIA

Abstract

Banks provide comprehensive financial services as compared to any other financial institutions by
collecting money from individuals who want to make savings and provide these collected amounts to those
who are in need to set up their enterprises and as such, they are exposed to the risk of failure due to the
huge amounts of money that are provided to the customers through loans, which may threat the stability
and growth of the banks. Therefore, the study determined the effect of credit risk management on
profitability of Commercial Banks in Nigeria from 2014 to 2023. The study adopts ex-post facto research
design while panel regression technique was used for the analysis. Credit risk management was measured
by non-performing loan, loan to deposit ratio, loan loss provision and leverage ratio while profitability
was measured by return on asset and from the analysis, the study found that non-performing loan has
negative significant effect on profitability, loan to deposit ratio has negative insignificant on profitability
while loan loss provision has positive significant effect on profitability and leverage ratio has negative
insignificant effect on profitability of commercial bank in Nigeria. The study concludes that credit risk
management has significant effect on profitability of Commercial banks in Nigeria therefore, the study
recommends that Management of commercial banks in Nigeria should mitigate against adverse selection
risks when advancing loans to minimize occurrences of nonperforming loans. This can be achieved by
good credit appraisal procedures, effective internal control systems, diversification along with efforts to
improve asset quality in the balance sheets. Also, Bank management should improve on the management
of bank assets and liabilities, especially on the quality of assets portfolio and deposit liabilities in order
to improve on the achievement of corporate objectives.