EFFECTS OF CREDIT RISK ON THE FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA: 2008 – 2023

Bank as an agent of economic development take a fundamental position in any country financial system because they act as mediators between those who have surpluses and those with deficits in savings by ensuring proper mobilization and allocation of fund, thereby increasing economic activities and investments. Therefore, the connection between credit risk and banks' financial performance is a critical area of study in financial management and banking. The intention of this study is to investigates the effects of credit risk on the financial performance of Deposit Money Banks (DMBs) in Nigeria, from 2008 – 2023. The research uses Return on Assets (ROA) as a proxy for the financial performance of deposits money banks in Nigeria and it also measuring credit risk with Loan to Deposit Ratio (LDR) and NonPerforming Loan Ratio (NPLR). The research employs the use of Autoregressive Distributed Lag (ARDL) model after conducting unit root tests to confirm stationarity. The findings reveal that neither loan to deposit ratio (LDR) nor non –performing loan ratio (NPLR) significantly influences return on assets (ROA) within the study period, with statistical tests showing no significant relationships and p-values exceeding the conventional thresholds 0.05 significant level. This study recommends that deposits money banks (DMBs) should improve on their operational efficiency, given the limited impact of loan to deposits ratio (LDR) and non-performing loan (NPLR) on return on assets (ROA). This involves streamlining processes, strengthen their credit risk assessment frameworks, enhance loan portfolio monitoring, and implement proactive measures to minimize non-performing loans and other operational risks.

1 01 Dec, 2024

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