Credit Management Spur Higher Profitability? Evidence from Nigerian Banking Sector (original) (raw)
Related papers
The Empirical Effectsof Credit Risk on Profitability of Commercial Banks: Evidence from Nigeria
The study investigates the effect of credit risk on profitability of commercial banks in Nigeria. Specifically, this research is to determine the significant effects of credit risk and its measure indicators; and the relationship between the indicators which influence the profitability of banks. A total 8 commercial banks (SIBs) was selected for the study, from the period 2011-2014. A panel data analysis is employed for the study to provide a robustness to the analytical model which passes all validity and reliability test to be a good fit model for hypotheses testing. Diagnostic test is utilized to test for data reliability and validity. The result of the analysis has revealed that there is a negative and significant relationship between non-performing loan ratio and the profitability; negative and insignificant relationship between debts to total assets ratio and profitability, and a positive and insignificant relationship between debts to equity ratio and profitability of banks during the period of study. In general, the results propose that banks needs to refocus on the effective management of their inherent risk which often affects their profitability and financial viability. Therefore, the study concludes that credit risk impact on profitability of commercial banks in Nigeria.
Re-Examining the Impact of Credit Risk on Profitability of Banks:Panel Evidence from Ghana
European Journal of Business and Management, 2019
Credit risk management has become an instrument for the survival and growth of financial institutions. The major cause of banking problems has been identified as ineffective credit risk management. The Ghanaian banking sector is currently undergoing significant reforms which have led to some banks being collapse whiles others consolidated. This study seeks to reexamine the impact of credit risk on the profitability of Banks in Ghana. Panel data covering the period of 2010-2015 was gathered from 20 banks. Three determinants of credit risk were selected. These are asset quality, non-performing loan, and liquidity. Return on Asset (ROA) was employed as a measure of profitability. We found that that while the relationship between asset quality, non-performing loan and profitability were statistically significant, the relationship between liquidity ratio and banks' profitability was found to be insignificant. This shows that banks with huge non-performing loans are less profitable and prone to a high rate solvency rate. Based on the result of the study, it is recommended that banks should adopt and implement effective credit risk management strategies as it will enhance their profitability.
This study examines the impact of managing credit risk and profitability of banks in Lagos state. It also focused on the need for prompt, effective and efficient service to numerous customers. The research hypothesis was tested and analyzed in relation to adequate credit risk management and its significant effect on banks' profitability. It was also the aim of this research to evaluate how effective it is for a bank to manage its credit risk effectively to enhance profitability. In the course of this work, data was gotten through administering structured questionnaires which were answered by respondents. Correlation coefficient was used to decide whether or not credit risk management has an impact on profitability. It was then revealed through the analysis of data from the questionnaire that credit risk management operations plays a significant role in the profitability and performance of banks in Lagos State. Therefore, management need to be cautious in setting up a credit policy that might not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits.
An Evaluation of the Effect of Credit Risk Management (CRM) on the Profitability of Nigerian Banks
This paper assesses the effect of credit risk management (CRM) on the profitability of Nigerian banks with a view to discovering the extent to which default rate (DR), cost per loan asset (CLA), and capital adequacy ratio (CAR) influence return on asset (ROA) as a measure of banks' profitability. Data were generated from secondary sources, specifically, the annual reports and accounts of quoted banks from 2002 to 2011. Descriptive statistics, correlation, as well as random-effect generalized least square (GLS) regression techniques were utilized as tools of analysis in the study. The findings establish that CRM as measured by three independent variables has a significant positive effect on the profitability of Nigerian banks as indicated by the coefficient of determinations "R 2 value" which shows the within and between values of 40.89% and 58.35% (which are impressive) while the overall R 2 is 43.91%, indicating that the variables considered in the model account for about 44% change in the dependent variable, that is, profitability. The study recommends that banks' management should be more scientific (application of risk evaluation techniques) in their credit risk assessment and management of loan portfolios in order to minimize the high incidence of non-performing loans and their negative effect on profitability.
MPACT OF CREDIT RISK ON BANK PERFORMANCE IN NIGERIA
IAEME PUBLICATION, 2021
The study considered the effect of credit risk on bank performance in Nigeria, taking into cognizance three banks selected at random in Nigeria. The study used return on assets as the dependent variable and also used capital adequacy ratio, non-performing loans ratio, total loans to total assets, total deposit and interest rate as independent variables coupled with the use of the classical Ordinary Least Square and panel cointegration techniques revealing that credit risk has negative impact on bank performance in the short run and while credit risk also has a long run relationship with bank performance in the long run. Hence, it was recommended that regulatory framework should be adhered to, internal control system should be enhanced while macroeconomic policy makers should stabilize the economy in a bid to stabilize profitability of bank.
CREDIT RISK AND THE PERFORMANCE OF NIGERIAN BANKS BY
Recently banks witnessed rising non-performing credit portfolios and these significantly contributed to financial distress in the banking sector. Banks collect deposits and lends to customers but when customers fail to meet their obligations problems such as non-performing loans arise. This study evaluates the impact of credit risk on the profitability of Nigerian banks. Financial ratios as measures of bank performance and credit risk were the data collected from secondary sources mainly the annual reports and accounts of sampled banks from 2004 -2008. Descriptive, correlation and regression techniques were used in the analysis. The findings revealed that credit risk management has a significant impact on the profitability of Nigeria banks. Therefore, management need to be cautious in setting up a credit policy that might not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits.
The effect of credit risk on the performance of commercial banks in Nigeria
This study examined the effect of credit risk on commercial banks performance. The study is motivated by the damaging effect of classified assets on bank capitalisation and would be of utmost relevance as it addresses how credit risk affects banks' profitability. Secondary data source was explored in presenting the facts. The secondary data are obtained from annual reports and relevant literatures. The result shows that the ratio of loan and advances to total deposit negatively relate to profitability though not significant at 5% and that the ratio non-performing loan to loan and advances negatively relate to profitability at 5% level of significant. This study shows that there is a significant relationship between bank performance (in terms of profitability) and credit risk management (in terms of loan performance). The study recommended that management need to be cautious in setting up a credit policy that will not negatively affect profitability.
Effects of Credit Risk Management on Performance of Deposit Money Banks in Nigeria
2017
This study examined the effects of credit risk management on the performance of deposit money banks in Nigeria from 2001-2015. The study employed panel regression analysis in which Profit after Tax (PAT) was used as proxy for bank performance while Non-Performing Loan Ratio (NPLR), Loan Loss Provision Ratio (LLPR), Loan to Total Asset Ratio (LTAR) and Cost per Loan Ratio (CPLR) were used as indicators of credit risk management. Fixed effect, random effect and Hausman test were conducted on the variables. This study revealed that banks profitability is negatively influenced by NPLR, LLPR and CPLR. While LTAR influences performance of banks positively. The study therefore concluded that deposit money banks in Nigeria have a high growth rates on loans and advances, with corresponding high rate of non-performing loans by customers. Also, the provisions for loan loss were slightly below the required amount 8% by Basel Accord with high administration costs. The study recommended that Nigerian banks should ensure high quality credit management and strict adherence to professional banking ethics. Also, deposit money banks should make adequate effort toward deposit mobilization and reduce credit administrative cost so as to be more efficient and enhance profitability.
Credit Risk and the Performance of Nigerian Banks
abu.edu.ng
Recently banks witnessed rising non-performing credit portfolios and these significantly contributed to financial distress in the banking sector. Banks collect deposits and lends to customers but when customers fail to meet their obligations problems such as non-performing loans arise. This study evaluates the impact of credit risk on the profitability of Nigerian banks. Financial ratios as measures of bank performance and credit risk were the data collected from secondary sources mainly the annual reports and accounts of sampled banks from 2004-2008. Descriptive, correlation and regression techniques were used in the analysis. The findings revealed that credit risk management has a significant impact on the profitability of Nigeria banks. Therefore, management need to be cautious in setting up a credit policy that might not negatively affects profitability and also they need to know how credit policy affects the operation of their banks to ensure judicious utilization of deposits.
The Impact of Credit Risk Management and Macroeconomic Variables on Bank Performance in Nigeria
WSEAS TRANSACTIONS ON BUSINESS AND ECONOMICS, 2020
The aim of this paper is to identify the main impact that credit management and macroeconomic variables have on bank performance in Nigeria. The reason for this is the numerous high level of deposit money banks’ bad debt based on available data. The bad debt tended to have a negative effect on performance. To this end, the researchers conducted a study using macroeconomic data, and other indicators of credit management and bank performance from 2009-2017 using 12 deposit money banks in Nigeria. The ordinary least square (OLS) method was utilized to determine the factors that explains the subject matter. The result showed the presence of a positive connection between the capital adequacy proportion and the sum national income on the Return on Asset. Therefore, Depositing Money Banks with a greater proportion of capital sufficiency can all the more likely develop more advances and retain credit misfortunes whenever it occurs and thus document better financial productivity as for the a...