EFFECT OF CREDIT RISK MANAGEMENT ON PROFITABILITY OF DEPOSIT MONEY 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 saving 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 Deposit money banks in Nigeria from 2011 to 2020. 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 capital adequacy  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  capital adequacy  ratio has negative insignificant effect on profitability of deposit money  bank in Nigeria. The study concludes that credit risk management has significant effect on profitability of Deposit money banks in Nigeria therefore, the study recommends that Management of deposit money 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.