EFFECT OF CREDIT RISK MANAGEMENT ON MARKET PERFORMANCE OF DEPOSIT MONEY BANKS LISTED IN NIGERIA

Abstract

This study investigated the effect of credit risk management on market performance of deposit money banks in Nigeria. Net asset per share was used as a proxy for the the dependent variable, market performance while capital adequacy ratio, sensitivity to market ratio, and credit to deposit ratio served as proxies to the independent variable, credit risk management. A sample of 12 deposit money banks were used for the period of eleven years spanning 2012 to 2022. The study employed ex-post facto and longitudinal research design. Data were collected from annual reports of the selected deposit money banks and five (5) specific objectives and hypotheses were subjected to some preliminary data tests like descriptive statistics. Pearson correlation analysis and Variance Inflation factor (VIF) were analyzed using panel regression analysis. Using a sample of 132 banks-year observations, the result revealed that credit to deposit ratio had negative effect on market performance proxied as net assets per share of deposit money banks in Nigeria; Conversely, Capital adequacy ratio and sensitivity to market ratio had positive but non-significant effect on market performance of deposit money banks in Nigeria. The study concluded that banks should improve credit management capacity, strengthen supervisory authorities, increase deposit moblisation, and develop reliable risk management strategies with minimal punishment for loan repayment default. Based on the findings above, the study recommended among others, that adequate provision against loan loss should be made and Nigerian 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.