Credit Risk Management and Bank Performance in Nigeria: A Conceptual/Meta-Narratives


Authors : GbengaI .Olorunsola; Emmanuel EmekaOwoh

Volume/Issue : Volume 8 - 2023, Issue 3 - March

Google Scholar : https://bit.ly/3TmGbDi

Scribd : https://bit.ly/42CgwdZ

DOI : https://doi.org/10.5281/zenodo.8296726

Abstract : The study used conceptual narrative(s)/meta-narrative(s) procedure to review the researchers’ empirical work and draw some conclusions on the relationship between Credit Risk Management and the performance of banks in Nigeria. Several variables such as Return on Assets, Return on Equity, and Economic Value-Added were used by most researchers as a proxy for Performance, while variables like Non-performing Loan ratio, Impairment Charges, Capital Adequacy ratio, Asset Quality, Firm size, Financial Leverage, Management Quality, and Liquidity were used as a measure of Credit Risk Management. While there is a consensus that loan loss provision and Impairment Charges have a negative relationship to performance (ROA) for most researchers such that the higher the loan losses, the lower the financial performance and vice versa. Most of the researchers agree that there is a positive relationship between Capital Adequacy Ratio and banks’ performance. This presupposes that the more capital is available to the bank, the more credit exposure will increase. However, the profit maximization expectations should be moderated by the risk appetite defined by the banks so that loan impairment can be contained given the information asymmetry and moral hazards that attain a credit decision. It is noted that while there is consensus in the findings, there is a need to expand the variables to include Nigeria-specific ones like Loan-to-deposit ratio and Cash Reserve requirement. These are currently significant phenomena in the Nigerian banking industry and will afford researchers the opportunity to recommend policy adjustments to ensure a sustainable economy.

The study used conceptual narrative(s)/meta-narrative(s) procedure to review the researchers’ empirical work and draw some conclusions on the relationship between Credit Risk Management and the performance of banks in Nigeria. Several variables such as Return on Assets, Return on Equity, and Economic Value-Added were used by most researchers as a proxy for Performance, while variables like Non-performing Loan ratio, Impairment Charges, Capital Adequacy ratio, Asset Quality, Firm size, Financial Leverage, Management Quality, and Liquidity were used as a measure of Credit Risk Management. While there is a consensus that loan loss provision and Impairment Charges have a negative relationship to performance (ROA) for most researchers such that the higher the loan losses, the lower the financial performance and vice versa. Most of the researchers agree that there is a positive relationship between Capital Adequacy Ratio and banks’ performance. This presupposes that the more capital is available to the bank, the more credit exposure will increase. However, the profit maximization expectations should be moderated by the risk appetite defined by the banks so that loan impairment can be contained given the information asymmetry and moral hazards that attain a credit decision. It is noted that while there is consensus in the findings, there is a need to expand the variables to include Nigeria-specific ones like Loan-to-deposit ratio and Cash Reserve requirement. These are currently significant phenomena in the Nigerian banking industry and will afford researchers the opportunity to recommend policy adjustments to ensure a sustainable economy.

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