Credit Risk as a Prognosticator of Investor Wealth Diminution Among Listed Banks in Nigeria

Abstract

Ineffectual management of credit risk results in rising non-performing loans that increase the likelihood of reduced shareholder returns and lowers the market value of listed banks. This undermines investor confidence as well as threaten overall stability in the banking sector. Hence, the study examined the effect of credit risk, proxied by non-performing loan ratio, on investor wealth diminution, proxied by market value added, among listed banks in Nigeria. The study adopted an ex post facto research design, relying on secondary data extracted from the audited annual reports of twelve listed banks for the period 2015 to 2024. The population consisted of all deposit money banks listed on the Nigerian Exchange Group, with a sample of twelve banks chosen based on the availability of complete financial statements. Data analysis and hypothesis testing were conducted using panel generalized least squares estimation to assess the effect of credit risk on investor wealth diminution while controlling for bank size. Findings revealed that non-performing loan ratio has a significant negative effect on market value added, indicating that higher credit risk reduces shareholder wealth, and the study concluded that effective credit risk management is essential for protecting investor wealth among listed banks in Nigeria. Therefore, the board of directors and risk management teams of listed banks should implement stricter credit appraisal and monitoring procedures to reduce the incidence of non-performing loans. By strengthening borrower evaluation, enforcing timely loan repayments, and enhancing loan recovery strategies, banks can lower credit risk levels, thereby protecting market value added and safeguarding investor wealth.