Effect of Credit Risk Management on the Financial Performance of Deposit Money Banks: Empirical Evidence from Nigeria 2010-2024

This study examined the effect of credit risk management on the financial performance of Deposit Money Banks (DMBs) in Nigeria over the period 2010 to 2024. The specific objectives were to determine how Non-Performing Loans (NPLs), Loan Loss Provisions (LLPs), and Total Loans and Advances (TLA) affect the Return on Assets (ROA) of Deposit Money Banks. Secondary data were obtained from the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC). The study employed the Autoregressive Distributed Lag (ARDL) technique to evaluate both the short-run and long-run relationships among the variables. The results of the analysis revealed that Non-Performing Loans (NPLs) exerted an insignificant effect on the Return on Assets of Deposit Money Banks, while Loan Loss Provisions (LLPs) showed a significant effect on ROA. Total Loans and Advances (TLA) has no significant effect on ROA. Based on these findings, the study concludes that credit risk management has no significant effect on financial performance of Deposit Money Banks (DMBs) in Nigeria within the period studied. Reference to the findings, first, Deposit Money Banks (DMBs) should enhance their credit assessment and loan monitoring procedures to ensure that borrowers meet the necessary creditworthiness criteria. This will help reduce loan defaults and improve overall asset quality, thereby promoting sustainable financial performance. Secondly, Deposit Money Banks (DMBs) should adopt more robust and forward-looking risk management frameworks that align with international best practices like the International Financial Reporting Standard (IFRS). This will ensure that provisions for potential loan losses are based on accurate risk assessments, reducing the strain on profitability while maintaining financial soundness. Finally, Deposit Money Banks (DMBs) should channel loans toward productive and less risky sectors of the economy and strengthen their loan recovery mechanisms. This approach will improve the efficiency of credit operations and ensure that lending activities contribute effectively to profitability and economic stability.