Credit Risk Management and Market Performance of Quoted Deposit Money Banks in Nigeria

Abstract

This study investigated the effect of credit risk management on market performance of deposit money banks in Nigeria. Market performance was used as dependent variable proxy as net assets per share while management quality ratio, capital adequacy ratio, sensitivity to market ratio, credit to deposit ratio and asset quality ratio were used as independent variables. A sample of 12 deposit money banks were used for the period of ten years spanning 2012 to 2021. The study employed ex-post facto and longitudinal research design. The secondary sources of data were collected from annual reports of the selected deposit money banks and five (5) specific objectives and hypotheses were subjected to some preliminary data tests like descriptive statistics, Pearson correlation analysis and Variance Inflation factor (VIF) were analyzed using panel regression analysis. Using a sample of 120 banks-year observations, the result revealed that management quality ratio, credit to deposit ratio and asset quality ratio have negative and statistically significant effect on market performance proxy as net assets per share of deposit money banks in Nigeria which was statistically significant at 5% level of significance. Conversely, Capital adequacy ratio and sensitivity to market ratio was found to have positive but non-significant effect on market performance of deposit money banks in Nigeria. Based on the findings above, the study recommends among others, that managers of Banks in Nigeria should enhance their management quality and capacity in credit analysis to reduce the risk of default in repayment as this will stem the cyclical nature of net assets per share and increase their market performance. Moreover, adequate provision against loan loss should be made and Nigeria banks should adopt an aggressive deposit mobilization to increase credit availability and develop a reliable credit risk management strategy with adequate punishment for loan payment defaults. The st