Effect of Credit Risk Management on Financial Deposit Money Banks: The case of Nigeria

In Nigeria, the issue of deposit money banks has raised a serious concern, and credit risk management appears to be a major player in this situation. Using audited financial data from selected deposit money banks in Nigeria from 2015 to 2024, this study applies panel regression analysis to assess the effect of credit risk management on deposit money banks. After confirming variable stationarity with the Levin-Lin-Chu and Im, Pesaran, and Shin unit root tests, the result from the Panel Least Squares in the first model shows that the loan-to-deposit ratio, non-performing loans, and coverage ratio are key determinants of banks’ financial performance. In the second model, focusing on wealth maximization, the loan provision ratio emerges as a significant predictor of return on assets and exhibits a positive effect on return on equity, indicating that higher loan provision ratios enhance banks’ market capitalization. It is recommended that, as a matter of urgency, emboldened monetary authority, through AMCON, protect the deposit money banks in Nigeria from untimely liquidation in the bid to provide credit facilities to the private and public establishments.