INVESTIGATE THE EFFECT OF CREDIT RISK MANAGEMENT ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA FROM 2011 TO 2017.

Abstract

The main objective of this paper was to investigate the effect of credit risk management on the financial performance of commercial banks in Nigeria from 2011 to 2017. Data was obtained from annual financial reports available on their official website from Osiris data base for all the selected ten quoted banks. The methodology employed in the course of this study was unbalanced panel regression analysis in estimating the relationship between capital adequacy ratios, non-performing loans, liquidity, bank size and gross domestic product growth and financial performance of commercial banks in Nigeria. The paper revealed that only capital adequacy ratios and non-performing loans are significantly affecting financial performance of commercial banks in Nigeria while liquidity, bank size and gross domestic product growth were not significantly affecting financial performance of commercial banks in Nigeria. Despite the fact that some of the variables of the model are found to be insignificant individually but jointly are found to be significant at 1% significant level as indicated by the probability value of F-statistic of 0.000. The study concluded that capital adequacy ratios, liquidity and bank size affect financial performance of commercial banks in Nigeria positively while non-performing loans and gross domestic product growth affect financial performance of commercial banks in Nigeria negatively. On the basis of the findings of this study; it is recommended that capital adequacy should be encouraged by making the price per shares of commercial banks attractive and less risky. The payback period of the investment in the shares of commercial banks should also be shortened in order to attract more buyers. The study further recommended that the size of nonperforming loans should be reduced by imposing more and high collateral securities as well as high interest rate on loans