CREDIT RISK MANAGEMENT AND PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA.

Abstract

The survival of Deposit Money Banks (DMBs) are largely dependent on efficient management of risk associated with lending that will ensure capital adequacy and resilience to external shocks in order to avoid bank failure. The objectives were to: investigate the impact of non-performing loan, capital adequacy), cost efficiency and lending ratio on profitability deposit money banks in Nigeria. Ex-post facto research design was employed for this study. The population of the study consist of 32 listed deposit money banks on the floor of Nigeria stock market as at December, 2020. A sample of five (5) banks was purposively selected for this study. The study used secondary data obtained from audited annual financial statements of the selected deposit money banks and Central Bank of Nigeria (CBN) annual reports for the periods between 2005 and 2020. Structural Equation Modelling (SEM), which uses SmartPLS for the structural and measurement model and Eviews 9 for descriptive analysis, was employed to analyze data collected. The
findings of this study were that non-performing loan (NPL) has negative significant impact on profitability of deposit money banks in Nigeria with (β = -0.327, t = -3.222 at p-value< 0.05); capital adequacy (CA) has positive significant impact on profitability of deposit
money banks in Nigeria with (β = 0.252, t = 2.612 at p-value < 0.05); cost efficiency(CE) has positive significant impact on profitability of deposit money banks in Nigeria with (β= 0.214, t = 2.153 at p-value < 0.05); and average lending ratio(ALR) has positive significant impact on profitability of deposit money banks in Nigeria with (β = 0.233, t = 2.890 at p-value < 0.05). The study concluded that credit risk management has impact on profitability of Deposit Money Banks in Nigeria. The study therefore recommended that the management of deposit money banks should develop strategies that will reduce the nonperforming loan so as to enhance the profitability of deposit money banks in Nigeria.