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CREDIT RISK MANAGEMENT: IMPLICATIONS ON BANK PERFORMANCE AND LENDING GROWTH IN NIGERIA
ABSTRACT
This study investigates the impact of credit risk on banks’ performance in Nigeria. A panel estimation of six banks from 2001 to 2016 was done using the random effect model frame work. Our findings show that credit risk is negatively and significantly related to bank performance measured by return on assets (ROA). This suggests that an increased exposure to credit risk reduces bank profitability. We also found that total loan has a positive and significant impact on bank performance. Therefore, to stem the cyclical nature of non-performing loans and increase their profits, The banks should adopt an aggressive deposit mobilization to increase credit availability and develop a reliable credit risk management strategy with adequate punishment for loan payment defaults.
Keywords: Bank performance, Credit risk, Return on assets, Deposit mobilization, Nonperforming loans, and Random effect.