For correspondence:-
Received: March 2, 2020 Accepted: March 31, 2020 Published: March 31, 2020
Citation: Credit Risk and the Performance of Deposit Money Banks in Nigeria. Account Tax Rev 2005; 4(1):46-62 doi:
© 2005 The authors.
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Abstract
This paper examined the impact of banking risks on the Performance of Deposit Money Banks (DMBs) in Nigeria. Changes in financial performance were examined based on the relative impact of credit risk. The study specifically focused on eighteen Deposit Money Banks (DMBs) listed on the Nigerian Stock Exchange, including a coverage period of nineteen years (2000 to 2018). Panel data fixed effect econometric statistical technique was used in the estimation of the specified model was used in the analysis of the data as well as investigating the hypotheses of the study. The results of the empirical analysis revealed that Credit risk does not have any significant effect on the performance of deposit money banks in Nigeria at the 5% level of significance. The only banking risk that negatively affected the performance of deposit money banks in Nigeria at the 5% level of significance is liquidity risk. Liquidity risk as measured by total loan to total asset ratio (LTAR) and total loan to deposit ratio (LDR) are the only factors that significantly affect the performance of Deposit Money Banks in Nigeria, within the period of investigation. Based on the results the study recommends among others that, management should continuously lay more emphasis on liquidity risk management in order to ensure that banks have adequate cash to meet the yearnings of depositors daily, and by so doing, prevent loss of confidence, panic withdrawals and eventual bank failure. Also, a more robust risk management that is fully in compliance with BASEL II and III accords and the prescribed ratio as provided by the regulatory institution (Central Bank of Nigeria), should be vigorously pursued in this regard. Doing this will go a long way to minimize the effect of banking risks on the overall performance of banks in Nigeria.
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