Impact of Credit Risk on the Performance of Deposit Money Banks in Nigeria (1994-2024)

Abstract

This study examined the impact of credit risk on the performance of deposit money banks in Nigeria from 1994 to 2024. This study sought to achieve the following objectives; to examine the impact of nonperforming loan on total asset of deposit money banks performance in Nigeria, to examine the impact of loan loss provision on total asset of deposit money banks performance in Nigeria, and to examine the impact of loan and advance on total asset of deposit money banks performance in Nigeria for a period of 31 years spanning from 1994 to 2024. The study adopted the ex-post facto research design to take into account the trends in the time series data set. Annual data were obtained from CBN statistical bulletin and NDIC data base for the period of the study. The ordinary least square (OLS) Model was used to analyze the data. The findings of the study revealed that, Nonperforming loans do not have significant positive effect on the performance of deposit money banks in Nigeria. Whereas, Loan loss provision, and Loan and advance has positive and significant effect on the performance of deposit money banks in Nigeria. Based on the findings, it was recommended that, The Central Banks of Nigeria (CBN) as the major regulatory authority of the Deposit Money Banks (DMBs) in Nigeria should formulate policies that would help to reduce the incidence of high proportion of nonperforming loans among deposit money banks in Nigeria thus effectively reducing exposure to credit risk. Also, Deposit Money Banks should ensure that they make adequate provision for loan loss and bad debt when they occur. This is so because frequent occurrence of the incidence of loan loss and bad debt can lead to bank failure.