Risk Management Practices and Financial Performance Among Deposit Money Banks in Nigeria
Article Sidebar
Main Article Content
Abstract: The banking sector in Nigeria plays an important role in the nation's financial ecosystem and is a major driver of economic growth and development. However, despite this essential role, Nigerian banks are exposed to a wide range of risks that can significantly impact their financial stability and overall performance. This study investigated the effect of credit risk management on the financial performance of deposit money banks in Nigeria, using panel data from five selected banks. Employing both Random and Fixed Effects models, the research evaluated how credit risk influences financial performance, with Return on Assets (ROA) serving as the key performance indicator. The findings revealed a positive and significant relationship between credit risk and ROA, indicating that higher credit risk levels are associated with improved financial outcomes. This underscores the importance of robust credit risk management and well-structured governance frameworks in driving financial performance. The study concluded that credit risk can positively impact market-based performance, as investors may perceive higher risk as a signal of greater potential returns. It emphasized the importance of robust risk management practices and governance mechanisms in sustaining long-term financial health. Consequently, the study recommended that banks strengthen their credit risk management frameworks, promote a culture of transparency and ethical behavior, and conduct regular reviews of governance structures to ensure alignment with evolving regulatory and market conditions.
Downloads
References
Ademola, O. & Ismaila, S. (2022). Financial risk and financial performance of deposit money banks in Nigeria. Journal of Economics and International Finance, 14(4), 112-119
Adenuga, A. O., Mohammed, J. A., Laniyan, C. V., Akintola, A. A., & Asuzu, O. C (2021) Measuring the Impact of Loan-to-Deposit Ratio (LDR) on Banks' Liquidity in Nigeria. Central Bank of Nigeria: Economic and Financial Review, 59(2), 43-59
Adeusi et al. (2013). Risk Management and Financial Performance of Banks in Nigeria. European Journal of Business and Management, 6(31), 336-342.
Akintola, A. F. & Adesanya, A. O. (2021) Contribution of Deposit Money Banks to Economic Growth in Nigeria. International Journal of Scientific and Research Publications, 11(1), 778-786
Ali, A., & Yusof, R. M. (2022). Risk management practices and financial performance: Evidence from Nigerian deposit money banks. Journal of Accounting and Financial Management, 8(2), 1–12.
Animasaun, R. O., Omotunwase, O. M., Babayanju, A. G. A., Bamgboye, A. A. (2025). Effect of Credit Risk Management on Financial Performance of Listed Deposit Money Banks in Nigeria. International Journal of Research in Social Science and Humanities (IJRSS), 6(1), 0-11
Ataine, M. M., & Osuji, C. C. (2024). Credit Risk Management and Financial Performance of Microfinance Banks in Nigeria. IIARD International Journal of Banking and Finance Research 10(8), 1-20
Besley S. &. Brigham E. F, (2009). Principles of Finance, Publisher Australia; Mason, OH: South-Western Cengage Learning
Coyle, B. (2000). Credit risk management: Framework for credit risk management. Fitzroy Dearborn Publishers.
Enoch, E. Y., Digil, A. M. & Arabo, U. A. (2021). A comparative evaluation of the effects of credit risk control on the profitability of micro-finance bank. European Journal of Business and Management Research, 6(6), 67-74.
Ilelaboye, C. S., Alade, M. E. & Oyetayo, A. L. (2023). Non-Performing Loans of Financial Institutions in Nigeria: A Trend Analysis. International Journal of Novel Research and Development (IJNRD), 8(12), 345-351.
Ikpefan, O. A., Ochei, A., & Agbontaen, O. O. (2021). Effect of credit risk management on the performance of deposit money banks in Nigeria. International Journal of Financial Research, 12(1), 48–60.
Jackson, E. A., & Tamuke, E. (2022). Credit risk management and the financial performance of domiciled banks in Sierra Leone: an empirical analysis. Journal of Economic Policy Researches, 9(1), 139-164.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Jo, H., & Harjoto, M. A. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103(3), 351–383.
Lonkani, R. (2018). Firm value: Theory and empirical evidence (P. S. Hoffmann, Ed.). BoD – Books on Demand.
Malahim, S. S. (2023). The relationship between the risk disclosure and risk management committee on banks value: empirical evidence from Jordan. International Journal of Professional Business Review, 8(3), 1-29.
Mbanefo, P. A. (2024). Risk Management Impact on Deposit Money Banks’ (DMBs’) Performance in Nigeria. IIARD International Journal of Banking and Finance Research, 10 (4), 98-116.
Merton, R. C. (1977). An analytic derivation of the cost of deposit insurance and loan guarantees. Journal of Banking and Finance, 1, 512–520.
Nnaomah, U. I., Odejide, O. A., Aderemi, S., Olutimehin, D. O., Abaku, E. A. & Orieno, O. H. (2024). AI in risk management: An analytical comparison between the U.S. and Nigerian banking sectors. International Journal of Science and Technology Research Archive, 6(1), 127–146.
Nugroho, M., Arif, D., & Halik, A. (2021). The Effect of Loan-Loss Provision, Non-Performing Loans and Third-Party Fund on Capital Adequacy Ratio. Accounting, 7(4), 943-950
Onaolapo, A. R. (2015). Effects of credit risk on bank performance in Nigeria. International Journal of Business and Management Review, 3(5), 43–52.
Owojori, A. A., Akintoye, I. R., & Adidu, F. A. (2011). The challenge of risk management in Nigerian banks in the post-consolidation era. Journal of Accounting and Taxation, 3, 23–31.
Oyelakun, O., Madugba, J., Oladipo, A., Adeola, O. & Adegbile, G. (2023). Credit Risk and its Management in the Banks: A Conceptual Review. Journal of International Money, Banking and Finance, 4(1), 23-32
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2014). Financial accounting theory and analysis (11th ed.). John Wiley & Sons.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71(3), 393–410.
Tomomewo A. O., Falayi, I. & Uhuaba (2023). Credit Risk Management as a Determinant of Non-Performance Loan of Deposit Money Banks in Nigeria. Journal of Finance and Accounting, 11(6), 179-188
Umoh, G. J., & Dimgba, O. N. (2021). Risk management practices and performance of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management, 9(6), 109–121.
Ugwu, C. P. (2025). Effect of Credit Risk Management on the Financial Performance of Selected Deposit Money Bank in Nigeria. Journal of Management Science & Entrepreneurship (JMSE) 7(7), 108-131.
This work is licensed under a Creative Commons Attribution 4.0 International License.
All articles published in our journal are licensed under CC-BY 4.0, which permits authors to retain copyright of their work. This license allows for unrestricted use, sharing, and reproduction of the articles, provided that proper credit is given to the original authors and the source.