Bank Performance And Credit Risk Management

ABSTRACT

This study investigates the effect of credit risk management enhances on the performance of the Nigerian banking industry with specific attention on management efficiency measured by return on asset (ROA) and return to shareholders measured by return on equity (ROE). The study is motivated by the increased concern based on research findings which seem to have isolated increasing portfolio of non-performing credit as a casual factor of bank failures globally. The validity of the above assertion equally seem strong in the Nigerian banking industry given that it was a major reason for the lacking and takeover of the board of five banks by the Central Bank of Nigeria (CBN) few months after they were consolidated. The objective of the study is to have an empirical evidence to explain the extent to which each of five proxies of bank credit management: non-performing loan/capital; non-performing loans/total loans; loan loss provision/non-performing loans; loan loss provision/total asset and loan loss provision/total loan explain variations in the bank performance. The data used was collected from Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation (NDIC) and covered the period 1999-2013. The ordinary least square regression was adopted for the analysis of our time-series data. The results of our analysis show that a non- performing loans/total loans (X1)exert significant positive effect on ROA and ROE. On the other hand loanslossprovisions/nonperforming loans(X2) and non-performing loans/capital(X5) exertsignificant negative effects on ROA and ROE. Based on the results, the study concludes that non- performing loans/total loans (X1) is the most critical ratio for measuring the credit risk exposure level of the banking industry in Nigeria and it effect on bank performance. The study recommends that banks should be made to focus always on the ratio of their non-performing loan/total loans as the most critical index of credit risk management. Keywords: Credit risk, Portfolio, Return on equity, return on asset, bank performance, management efficiency.