Abstract
This study examines the effect of credit risk management on financial performance in listed microfinance banks in Nigeria. Data were collected from annual report and accounts of the two microfinance banks listed on the Nigerian Stock Exchange within 2012 to 2017. Data collected were subjected to statistical analysis of Pearson correlation, and Multiple Regression, Panel regression. The results revealed that, Capital adequacy ratio is negative and has significant effect on financial performance. Ratio of Non-performing loans to total loan is positive and has a significant impact on financial performance. Ratio of loan loss provision is negative and has a significant impact on financial performance of microfinance banks in Nigeria. The control variable, bank size and inflation are negative and not significant with financial performance. This study showed that there is a significant impact of credit risk management on financial performance of microfinance banks in Nigeria and recommended that microfinance banks in Nigeria should only give loans to borrowers with better future inflows, this is in line with the anticipated income theory under pining in this study. Keywords: Credit Risk Management, Financial Performance, Microfinance Banks. DOI: 10.7176/RJFA/11-18-13 Publication date: September 30 th 2020
Highlights
Microfinance banks are specialized institutions that provide financial services to low income groups or individual; such as savings, micro-credit, and other services with the aim of improving the economic status of small-scale producers, both in the rural and urban areas
Objectives of the Study The main objective of this study is to examine the effect of credit risk management on financial performance of listed microfinance banks in Nigeria
Inflation (INF) is significantly related with CAR at 5% level of significance While ratio of nonperforming loan to total loan (RnPT), bank size (BS) and ratio of loan loss provision (RLoLP) and are not significant with capital adequacy ratio (CAR)
Summary
Microfinance banks are specialized institutions that provide financial services to low income groups or individual; such as savings, micro-credit, and other services with the aim of improving the economic status of small-scale producers, both in the rural and urban areas. They make financial services accessible to the poor who are conventionally not served by the standard formal financial sector (Augsburg &Fouillet,2010). Interest on loans and advances are the main sources of income for microfinance banks, by giving loans, banks are exposed to credit risk. Different scholars have made effort to explain the concept of credit risk
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