Effect of Credit Risk Management on Financial Performance of Deposit Money Bank in Nigeria

This study investigates the effect of credit risk management on the financial performance of deposit money banks in Nigeria from 2012 to 2023. Using panel data analysis, the research examines how credit risk indicators including non-performing loan ratios and capital adequacy affect bank profitability as measured by Return on Assets (ROA). The study analyzes data from 10 Nigerian deposit money banks using multiple regression analysis to test the relationships between these variables. The findings reveal significant relationships between the Non-performing Loan to Total Loan Ratio (NPLLR), which shows an unexpected positive and significant impact on ROA, Loan to Deposit Ratio (NPLDR) demonstrates a significant negative relationship with profitability, and the Capital Adequacy Ratio (CAR) exhibits a significant positive relationship with ROA. These results highlight the complex dynamics between credit risk management and bank performance in Nigeria's banking sector. The study contributes to understanding how different credit risk metrics affect bank profitability and provides insights that could inform regulatory policies and banking practices. The findings suggest that while Nigerian banks have developed mechanisms to maintain profitability in the face of credit risk, maintaining strong capital adequacy and managing the loan-to-deposit ratio remain crucial for sustainable financial performance.