Credit Risk Management and Financial Performance of Microfinance Banks In Nigeria (2011 - 2020)

Abstract

Microfinance banks holds the key to economic growth in developing economics and their financial health is sacrosanct to achieving this role.They provide small scale finances to small business enterprises. This study examined the effect of credit risk management on the financial performance of Microfinance banks in Nigeria. Published financial reports of six purposively selected Microfinance banks, covering the period of 2010 - 2019 were used as data for the regression model. The study employs descriptive statistics, Panel least squares regressions and correlation analysis to estimate the effect of the credit risk variables proxied by Non-performing loan ratio (NPLR), Liquidity ratio (LIQR) and Capital adequacy ratio (CAR) on the financial performance measured by Return on assets (ROA). Arising from the results of the Panel regression, the study therefore concluded that credit risk management proxied by NPLR and CAR have significant effect on the financial performance of the selected Microfinance bank in Nigeria proxied by ROA. Hence, Central bank of Nigeria should regularly monitor Microfinance bank’s compliance to relevant provisions of the law as it concerns debt accumulation.