Credit management and performance of deposit money banks in Nigeria
Abstract
Granting of loans and advances remains one of the ways deposit money banks generate income to boost their performance. However, as important as this appears, it has led to incidence of rising non-performing loans in the credit portfolio of deposit money banks. Against this backdrop, this study investigated the effect of credit management on the performance of deposit money banks in Nigeria. The study employed secondary data sourced from Central Bank of Nigeria (CBN) statistical bulletin and annual reports of Nigeria Deposit Insurance Corporation (NDIC) from 1986 to2016. From the data, bank performance (dependent variable) was measured by return on assets (ROA) while credit management (independent variable) was proxied by ratio of non-performing loans to total loans (NPFL), bank deposit (BDEP) and lending rate (LENDR). The study employed autoregressive distributed lag (ARDL) technique to examine the effect of the independent variables on the dependent variable. The findings revealed that ratio of non-performing loans to total loans with coefficient of -0.362733 had negative effect in the short run but produced positive effect on performance of deposit money banks in the long run as indicated by the coefficient of 1.583503. On the other hand, bank deposit exhibited positive influence while lending rate had negative effect on the dependent variable both in the short run and long run. Given the overall significance of the model, it was concluded that credit management had significant effect on performance of deposit money banks in Nigeria. Thus, it was recommended that bank management should endeavor to reduce incidence of non-performing loans by conducting thorough assessment of any credit application prior to approval, especially customer’s character and previous credit record. Also, banks should closely monitor customer’s investment activities to ensure that granted loans are not diverted to unprofitable ventures which the loans are not initially meant for.
Downloads
References
Abaenewe, Z.C., Ogbulu, O.M. & Ndugbu, M.O. (2013). Electronic banking and bank performance in Nigeria. West African Journal of Industrial & Academic Research, 6(1), 171-187.
Adeusi, S.O. & Dada, O. (2017). Impact of credit risk management on deposit money banks performance in Nigeria. Journal of Association of Professional Bankers in Education (JAPBE), 1(1), 163-178.
Ahmed, A.S., Takeda, C. & Shawn, T. (1998). Bank loan loss provision: A reexamination of capital management and signaling effects. Working Paper, Department of Accounting, Syracuse University, 1-37.
Akinde, J. & Kayode, O.F. (2016). Determinants of bank profitability in Nigeria. International Journal of Business, Science and technology, Bosempublishers1, 2016.
Aktan, B. & Bulut, C. (2008). Financial Performance Impacts of Corporate Entrepreneurship in Emerging Markets: A Case Study of Turkey. European Journal of Economics, Finance and Administrative Science, 12, 69-79.
Angbazo, L. (1997). Commercial bank net interest margin, default risk, interest rate risk, and off-balance sheet banking. Journal of Banking and Finance, 2(1), 55-87.
Binks, M. & Ennew, C. (1992). Information asymmetries and the provision of finance to small firms. International Small Business Journal, 11(1), 35-46.
Chen, K. & Pan, C. (2012). An Empirical Study of Credit Risk Efficiency of Banking Industry in Taiwan. Web Journal of Chinese Management Review, 15(1), 1-16.
Devinaga, R. (2010). Theoretical framework of profitability as applied to commercial banks in Malaysia. European Journal of Economics, Finance and Administrative Sciences, 19(1), p.74. Available at: http://www.research.net/.../286044128_Theoretical
Drigă, I. (2012). Financial Risks Analysis for a Commercial Bank in the Romanian Banking System, Annales Universitatis Apulensis Series Oeconomica, 14(1), 164-177.
Edwards, P. & Turnbull, H. (1994). Finance for small and medium sized enterprises. Information and the income gearing challenge. International Journal of Marketing, 12(6), 3
Etale, L.M., Ayunku, P.E. & Etale, E.L.M. (2016). The impact of non-performing loans and bank performance in Nigeria. International Journal of Humanities and Social Invention, 5(4), 1-5.
Hamza, S. M. (2017). Impact of credit risk management on banks performance: A case study in Pakistan banks. European Journal of Business and Management, 9(1), 57-64.
Hassan, M.K. & Bashir, A.M. (2003). Determinants of Islamic banking profitability paper presented at the Economic research forum conference 10th annual conference.
Kolapo, T.F., Ayeni, R.K. & Oke, M.O. (2012). Credit risk and commercial banks’ performance in Nigeria: A panel model approach. Australian Journal of Business and Management Research, 2(2), 31-38.
Kosmidou, K., Tanna, S. & Pasiouras, F. (2005). Determinants of profitability of domestic UK commercial banks: Panel Evidence from the Period 1995 – 2002.Money Macro and Finance (MM|F) Research Group Conference.
Kreps, J.W. (1972). Credit Administration, American Institute of Bankers and American Bankers Association.
Li, F., & Zou, Y. (2014). The Impact of Credit Risk Management on Profitability of Commercial Banks. Umea Universitet.
Millers, S.M. & Noulas, A.G. (1997). Portfolio mix and large - bank profitability in USA. Applied Economics, 29 (4), 505 - 512.
Molyneux, P. & Thornton, J. (1992). The determinants of European bank profitability: Journal of Banking and Finance,16 (6), 1173-1178.
Myers, C.S. & Brealey, R.A. (2003). Principles of Corporate Finance. New York: McGraw-Hill.
Nelson, L. (2002). Solving Credit Problem. Available:http://www.cfo.com
Nwanna, I.O. & Oguezue, F.C. (2017). Effect of credit management on profitability of deposit money banks in Nigeria. IIARD International Journal of Banking and Finance Research, 3(2), 137-160.
Nwude, E.C. & Okeke, C. (2018). Impact of credit risk management on the performance of selected Nigerian banks. International Journal of Economics and Financial Issues, 8(2), 287-297.
Nzotta, S.M. (2004). Money, banking & finance: Theory and practice. Nigeria: Hudson Jude Nigeria Publishers.
Ogbulu, O.M. & Eze, G.P. (2016). Credit risk management and the performance of deposit money banks in Nigeria: An error correction analysis. Applied Economics and Finance, 3(2), 97-109.
Olabamiji, O. & Michael, O. (2018). Credit management practices and bank performance: Evidence from First Bank. South Asian Journal of Social Studies and Economics, 1(1), 1-10.
Okoh, J.I., Nkechukwu, G.C. & Ezu, G.K. (2016). Liquidity management and performance of banks in Nigeria: Investigating the nexus. In I. Okoye, K.C. Onyima & K. Ezu (Ed.), Managing diversification for sustainable development in Sub-Saharan Africa. Proceedings of Faculty of Management Sciences‟ Nnamdi Azikiwe University, Awka, 2016 International Conference, 8th – 10th November (pp.761-783). Anambra, Nigeria.
Osuka, B. & Amako, J. (2015). Credit management in Nigeria deposit money banks (2003-2013): A study of selected deposit money banks). International Research Journal of Education and Innovation (IRJEI), 1(3), 66–103.
Owoputi, J.A., Kayode, O.F., & Adeyefa, F.A. (2014). Bank specific, industry specific and macroeconomic determinants of bank profitability in Nigeria. European Scientific Journal, 10(25), 408-423.
Pasha, S.A. & Mintesinot, B. (2017). Assessment of credit risk management system in Ethiopian banking. International Journal of Business and Management Invention, 6(4), 98-110.
Perevozova I., Babenko V., Kondur O., Krykhovetska Z. and Daliak N. (2019). Financial support for the competitiveness of employees in the mining industry. SHS Web of Conferences, 65, pp. 1-6. doi: https://doi.org/10.1051/shsconf/20196501001
Perevozova, I., Daliak, N., Babenko, V. (2019). Modeling of Financial Support for the Competitiveness of Employees in the Mining Industry. CEUR Workshop Proceedings, No. 2422, pp. 444-454. URL: http://ceur-ws.org/Vol-2422/paper36.pdf
Saba, I., Kouser, R. & Azeem, M. (2012). Determinants of non-performing loans: Case of US banking sector, International Journal of Banking and Finance, (44), 479-488.
Sahlemichael, M. (2009). Credit risk management system of Ethiopian commercial banks (Case of some public and private banks). Siskos, Catherine. "Blazing New Trails." Kiplinger's Personal Finance Magazine.
Taiwo, A.M. & Abayomi, S.T. (2013). Credit management spur high profitability? Evidence from Nigerian banking sector. Journal of Applied Economics and Business, 1(1), 46-53.
Tetteh, L.F. (2012). Evaluation of credit risk management practices in Ghana commercial bank limited (Doctoral dissertation, Kweme Nkruma University of Science and Technology) Retrieved from: http://ir.knust.edu.gh/bitstrem/123456789/.../FREDRERICK%20LAWER%20TETTE.pdf
Uwalomwa, U., Uwuigbe, O.R. & Oyewo, B. (2015). Credit management and bank performance of listed banks in Nigeria. Journal of Economics and Sustainable Development, 6(2), 27-32.
Uwuigbe, U. (2013). An examination of the effects of ownership structure and financial leverage on divided policies of listed firms in Nigeria, Journal of Economics, Business, and Accountancy Ventura, 16(2), 251-258.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication of this work under the terms of a license Creative Commons Attribution License 4.0 International (CC BY 4.0).
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
