Credit Risk and Financial Performance of Quoted Commercial Banks in Nigeria

Abstract

This study determined the relationship between credit risks and the financial performance of quoted commercial banks in Nigeria. The credit risk variables studied were exchange rate, interest rate and liquidity rate. Financial performance was measured using return on assets. The research design employed in this study was the Ex-post facto research design. The population comprised the top 10 commercial banks in Nigeria as of December 2021 with updated financial statements up to 2021. The banks were ranked in terms of assets. The study covered a period of five years - 2017 to 2021. The study utilized secondary data that were extracted from the annual report and accounts of the commercial banks. Descriptive statistics were used to summarize the mean, median, standard deviation, maximum and minimum mean values of the study variables. Regression analysis was used to analyze the research hypotheses. The findings of the study revealed a significant relationship between liquidity ratios and financial performance, but no significant relationship between exchange rate, interest rate and financial performance. As the exchange rate and interest rate rose, the return on assets reduced. The study concluded that high interest rates have a negative effect on bank performance. It was recommended that banks should mitigate credit risks by using appropriate risk management strategies through forwards, futures, swaps, options, and insurance as well as securitization techniques.