EFFECT OF CREDIT RISKS ON FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The low performance of the Nigerian banking sector was revealed by the Financial Stability Report of the Central Bank of Nigeria in 2020, which stated that the financial status of the Nigerian deposit money banks is very week and not promising as their primary duties of financial intermediation and money creation may be affected in relation to their poor performance in almost all major banking performance indicators.In view of this, the study examined the effect of credit risks on the financial performance of listed Deposit Money Banks in Nigeria from the period of 2013-2022. The population of the study consisted of Nineteen (19) DMBs listed in Nigeria, seven (7) DMBs were later filtered out reducing the total population to twelve (12) adjusted population. Secondary data were extracted from the annual financial reports of the twelve (12) adjusted population from 2013 to 2022. The dependent variable which is financial performance was proxied by Return on Assets (ROA), while credit risks was proxied by Non-performing loan, Loan loss provision, and Insider lending whereas firm size was used as a control variable in the study. After all the necessary diagnostic tests were conducted the outcome supported the use of the Random Effect (RE) regression analysis technique. The regression result shows that Non-performing loan, and Insider lending had negative and significant effect on the financial performance of listed DMBs in Nigeria, while Loan loss provision had positive and significant effect on the financial performance of listed DMBs in Nigeria. Therefore, the study concluded that Non-performing loan, Loan loss provision and Insider lending are all determinants of DMBs financial performance in Nigeria. In line with the conclusion, the study recommended that the management of the listed DMBs in Nigeria should increase the rate of Non-performing loans and Insider lending to enhance their financial performance. Also, the management of the listed DMBs in Nigeria should increase their loan loss provision to promote their financial performance.