Credit Management and Financial Performance: Evidence from Deposit Money Banks in Nigeria
Keywords:
Financial performance, banks, Credit risk, Liquidity risk, Asset quality
Abstract
This research evaluated the effect of credit management practices on the financial performance of deposit money banks listed on the Nigerian Exchange Group (NGX) between 2014 and 2023. The study utilized correlation and ex-post facto research methodologies. Data analysis involved descriptive statistics and multiple regressions. Secondary data were sourced from the Central Bank of Nigeria's statistical bulletin and the Audited Annual Reports of the listed deposit money banks in Nigeria. The study used net interest margin (NIM) as a measure of bank performance, while credit risk, liquidity risk, and asset quality served as the independent variables. Firm size was also included as a control variable. The research findings indicate that credit risk has a non-significant negative correlation with financial performance. Additionally, liquidity risk shows a significant negative correlation with financial performance, whereas asset quality demonstrates a non-significant negative correlation with the financial performance of listed deposit money banks in Nigeria. Based on these results, the study recommends that deposit money banks should enhance their capabilities in credit management analysis. Moreover, banks should strive to maintain a well-balanced portfolio of liquid assets that can be quickly converted into cash without significant loss in value. Lastly, banks are advised to conduct thorough asset quality audits to ensure effective management and compliance with all relevant standards and regulations.
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References
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Ajayi F. (2017), Effects of credit risk management on the performance of Deposit Money Banks in Nigeria. International Journal of Research in Management & Business Studies (IJRMBS 2017) Vol. 4 Issue 3 Jul. - Sept. 2017 ISSN : 2348-6503 (Online) ISSN : 2348-893X (Print)
Arroyave, J. (2018). A comparative analysis of the effectiveness of corporate bankruptcy prediction models based on financial ratios: Evidence from Colombia. Journal of International Studies, 11(1), 273-287.
Asmar M. (2018), Effects of bank-specific factors on the net interest margin of working banks in Palestine; Journal of Economics and Management, ISSN 1732-1948 Vol. 33 (3) 2018; doi: 10.22367/jem.2018.33.01
Altunbas, Y., Gambacorta, L. & Marques-Ibanez, D., (2010). Does monetary policy affect bank risk-taking?, Bank for International Settlements Working Paper, 298.
Ejoh, N. O., & Iwara, U. U. (2014). The impact of capital adequacy on deposit money banks’ profitability in Nigeria. Research Journal of Finance and Accounting, 5(12), 7-15.
Eno, U. G., & Iniabasi, E. (2022). Credit Risk and Financial Performance of Quoted Commercial Banks in Nigeria. Global journal of social sciences, 1(8), 7-18.
Ezejiofor, R. A., Adigwe, P. K. & John-Akamelu R. C. (2015), The Credit Management on Liquidity and Profitability Positions of a Manufacturing Company in Nigeria: European Journal of Research and Reflection in Management Sciences Vol. 3 No. 3, 2015: ISSN 2056-5992 www.idpublications.org
Fali, I.M., Philomena, O.N., Ibrahim, Y & Amos, J. (2020). Risk Management CommitteeSize, Independence, Expertise and Financial Performance of Listed Insurance Firms in Nigeria. International Journal of Research and Innovation in Social Science(IJRISS),5(4): 313-319.
Fatemi, S. & Foolad, J. M. (2006). An evaluation of the effect of credit risk management (CRM) on the profitability of Nigerian banks. Journal of Modern Accounting and Auditing, 10(1), 104-111.
Hailu, T. M., & Sankar, D. G. (2019). Collision of NPLs on the Financial Performance of Commercial Banks: A Case Study of Ethiopia. Asian Finance & Banking Review, 3(1), 1-11.
John, A., C., Goodfaith, O., & Ph, N. (2021). Effect of credit and operational risk management on firm. 4(1), 14–32.
Kaitibi, D. B., Ganawah, E. T. J., Yokie1, M. A., Jalloh, M., & Koroma, B. M. (2018). Impact of efficient credit management on profitability of commercial banks in Sierra-Leone. Open Journal of Business and Management, 6(1), 139-150.
Kariuki, S. (2017). The effect of corporate tax planning on the financial performance of listed companies in Kenya (Doctoral dissertation, University of Nairobi).
Makokha, E. N., Madegwa, B. L., & Namusonge, G. (2018). Effects of automation of revenue collection on the performance of county government: A case study of Trans Nzoia, County Government. Kenya. European Journal of Business and Management, 10(11), 32-49.
Mboto, H. W., Anake, A. F., Nkamare, D. J. M., & Ekpo, S. (2022). Credit administration and performance of some selected microfinance banks in Cross River State. Journal of Economics and Sustainable Development, 12(2), 93-99.
Myers, K. & Berkley, S. (2013). Assessment of credit management practices: the case of Lion International bank SC (Doctoral dissertation, ST. Mary's’ University).
Natufe O. K. and Evbayiro-Osagie E. I. (2023), Credit Risk Management and the Financial Performance of Deposit Money Banks: Some New Evidence. Journal of Risk and Financial Management. 2023, 16, 302. www.mdpi.com/journal/jrfm
Nelson L. (2012), Solving Credit Problem; 2002. Available :http://www.cfo.com
Nguyen, Q. K. (2022). The impact of risk governance structure on bank risk management effectiveness: Evidence from ASEAN countries. Heliyon, 8(10).
Naomi, H. (2011). Risk and Record Management: Investigating risk and risk management in the context of records and information management in electronic environment. Available at http://www.Northumbria.openrepository.com [Accessed 25th July, 2023]
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.
Nyaiiet, S. K. (2017). An analysis of Non-performing loans in Nigerian deposit money banks. Arts and Social Science Research, 12(2), 23-23.
Ofoegbu, G. N., Duru, N., & Onodugo, V. (2016). Liquidity Management and Profit Performance of Pharmaceutical. International Journal of Management Sciences and Business Research, 5(7), 1- 13
Ogboru, M. J. (2019). Asset quality and deposit money banks performance in Nigeria. American International Journal of Business and Management Studies, 1(1), 38-47.
Okoh, G., Victor, I. E., & Innocent, I. O. (2019). Effect of non-performing loans on the financial performance of commercial banks in Nigeria. American International Journal of Business and Management Studies, 1(2), 1-9.
Okpala, K. E., Osanebi, C., & Irinyemi, A. (2019). The impact of credit management strategies on liquidity and profitability. Journal of Behavioural Studies, 1(1), 1-14.
Okpara, K. E. (2017). Strategic Budgetary System and Infrastructure Development of the Power sector in Nigeria, 1981-2015. (Unpublished Ph.D. thesis, Department of Business Administration and Marketing of Babcock Business School.
Omorokunwa, O. G., & Ogbeide, E. A. (2020). Credit risk management and deposit bank performance in Nigeria. Research Journal of Finance and Accounting, 5(12), 7-15.
Otieno, S., Nyagol, M., & Onditi, A. (2016). Relationship between Credit risk management and financial performance: empirical evidence from microfinance banks in Kenya. Research journal of finance and accounting, 7(6), 2222-2847.
Otitolaiye, E. I. (2020). Credit Risk Management and the Financial Performance of Deposit Money Banks: Some New Evidence. Journal of Risk and Financial Management, 16(7), 302.
Oyadonghan, K. J., & Bingilar, P. F. (2014). The impact of effective credit policy on liquidity of manufacturing companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(7), 88-100.
Ozurumba B. A. (2016), Impact of Non-Performing Loans on the Performance of Selected Commercial Banks in Nigeria; Research Journal of Finance and Accounting, ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.16, 2016 www.iiste.org
Petersen, M. A. & Rajan, R. G. (1995). The effect of credit market competition on lending relationships; The Quarterly Journal of Economics; 110(2): 407- 443. http://dx.doi.org/10.2307/2118445
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643 - 657.
Suyanto, S. (2021). The effect of bad credit and liquidity on bank performance in Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 451-458.
Tetteh LF. (2012); Evaluation of credit risk management practices in Ghana commercial bank limited (Doctoral dissertation, Kweme Nkruma University of Science and Technology); Available:http://ir.knust.edu.gh/bitstrem/12 3456789
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.
Wuave, T., Yua, H. and Yua, P. M (2020), Effect of Liquidity Management on the Financial Performance of Banks in Nigeria. European Journal of Business and Innovation Research. Vol.8, No.4.pp. 30-44, July 2020 Print ISSN: 2053-4019(Print), Online ISSN: 2053-4027(Online)
Yinka, A. S., Taofeekb, A., Abimbolaa, C., & Olusegunc, A. (2015). Journal of Economic & Financial Studies. Journal of Economic & Financial Studies, 3(01), 1-9.
Abidin, Z. (2017). Performance efficiency in commercial banks. Proceeding, psychology, economics, literature, architects and civil, 2.
Adegbola, A. J.; Olatilewa, O. M.; Akor, S; & Obarein, O ((2019), Needs Assessment in Intervention Programs for Rural Development. J. Appl. Sci. Environ. Manage. Vol. 23 (12) 2151-2158 December 2019; https://www.ajol.info/index.php/jasem
Afolabi, T. S., Obamuyi, T. M., & Egbetunde, T. (2020). Credit risk and financial performance: Evidence from microfinance banks in Nigeria. IOSR Journal of Economics and Finance, 11(1), 8-15.
Ajayi F. (2017), Effects of credit risk management on the performance of Deposit Money Banks in Nigeria. International Journal of Research in Management & Business Studies (IJRMBS 2017) Vol. 4 Issue 3 Jul. - Sept. 2017 ISSN : 2348-6503 (Online) ISSN : 2348-893X (Print)
Arroyave, J. (2018). A comparative analysis of the effectiveness of corporate bankruptcy prediction models based on financial ratios: Evidence from Colombia. Journal of International Studies, 11(1), 273-287.
Asmar M. (2018), Effects of bank-specific factors on the net interest margin of working banks in Palestine; Journal of Economics and Management, ISSN 1732-1948 Vol. 33 (3) 2018; doi: 10.22367/jem.2018.33.01
Altunbas, Y., Gambacorta, L. & Marques-Ibanez, D., (2010). Does monetary policy affect bank risk-taking?, Bank for International Settlements Working Paper, 298.
Ejoh, N. O., & Iwara, U. U. (2014). The impact of capital adequacy on deposit money banks’ profitability in Nigeria. Research Journal of Finance and Accounting, 5(12), 7-15.
Eno, U. G., & Iniabasi, E. (2022). Credit Risk and Financial Performance of Quoted Commercial Banks in Nigeria. Global journal of social sciences, 1(8), 7-18.
Ezejiofor, R. A., Adigwe, P. K. & John-Akamelu R. C. (2015), The Credit Management on Liquidity and Profitability Positions of a Manufacturing Company in Nigeria: European Journal of Research and Reflection in Management Sciences Vol. 3 No. 3, 2015: ISSN 2056-5992 www.idpublications.org
Fali, I.M., Philomena, O.N., Ibrahim, Y & Amos, J. (2020). Risk Management CommitteeSize, Independence, Expertise and Financial Performance of Listed Insurance Firms in Nigeria. International Journal of Research and Innovation in Social Science(IJRISS),5(4): 313-319.
Fatemi, S. & Foolad, J. M. (2006). An evaluation of the effect of credit risk management (CRM) on the profitability of Nigerian banks. Journal of Modern Accounting and Auditing, 10(1), 104-111.
Hailu, T. M., & Sankar, D. G. (2019). Collision of NPLs on the Financial Performance of Commercial Banks: A Case Study of Ethiopia. Asian Finance & Banking Review, 3(1), 1-11.
John, A., C., Goodfaith, O., & Ph, N. (2021). Effect of credit and operational risk management on firm. 4(1), 14–32.
Kaitibi, D. B., Ganawah, E. T. J., Yokie1, M. A., Jalloh, M., & Koroma, B. M. (2018). Impact of efficient credit management on profitability of commercial banks in Sierra-Leone. Open Journal of Business and Management, 6(1), 139-150.
Kariuki, S. (2017). The effect of corporate tax planning on the financial performance of listed companies in Kenya (Doctoral dissertation, University of Nairobi).
Makokha, E. N., Madegwa, B. L., & Namusonge, G. (2018). Effects of automation of revenue collection on the performance of county government: A case study of Trans Nzoia, County Government. Kenya. European Journal of Business and Management, 10(11), 32-49.
Mboto, H. W., Anake, A. F., Nkamare, D. J. M., & Ekpo, S. (2022). Credit administration and performance of some selected microfinance banks in Cross River State. Journal of Economics and Sustainable Development, 12(2), 93-99.
Myers, K. & Berkley, S. (2013). Assessment of credit management practices: the case of Lion International bank SC (Doctoral dissertation, ST. Mary's’ University).
Natufe O. K. and Evbayiro-Osagie E. I. (2023), Credit Risk Management and the Financial Performance of Deposit Money Banks: Some New Evidence. Journal of Risk and Financial Management. 2023, 16, 302. www.mdpi.com/journal/jrfm
Nelson L. (2012), Solving Credit Problem; 2002. Available :http://www.cfo.com
Nguyen, Q. K. (2022). The impact of risk governance structure on bank risk management effectiveness: Evidence from ASEAN countries. Heliyon, 8(10).
Naomi, H. (2011). Risk and Record Management: Investigating risk and risk management in the context of records and information management in electronic environment. Available at http://www.Northumbria.openrepository.com [Accessed 25th July, 2023]
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.
Nyaiiet, S. K. (2017). An analysis of Non-performing loans in Nigerian deposit money banks. Arts and Social Science Research, 12(2), 23-23.
Ofoegbu, G. N., Duru, N., & Onodugo, V. (2016). Liquidity Management and Profit Performance of Pharmaceutical. International Journal of Management Sciences and Business Research, 5(7), 1- 13
Ogboru, M. J. (2019). Asset quality and deposit money banks performance in Nigeria. American International Journal of Business and Management Studies, 1(1), 38-47.
Okoh, G., Victor, I. E., & Innocent, I. O. (2019). Effect of non-performing loans on the financial performance of commercial banks in Nigeria. American International Journal of Business and Management Studies, 1(2), 1-9.
Okpala, K. E., Osanebi, C., & Irinyemi, A. (2019). The impact of credit management strategies on liquidity and profitability. Journal of Behavioural Studies, 1(1), 1-14.
Okpara, K. E. (2017). Strategic Budgetary System and Infrastructure Development of the Power sector in Nigeria, 1981-2015. (Unpublished Ph.D. thesis, Department of Business Administration and Marketing of Babcock Business School.
Omorokunwa, O. G., & Ogbeide, E. A. (2020). Credit risk management and deposit bank performance in Nigeria. Research Journal of Finance and Accounting, 5(12), 7-15.
Otieno, S., Nyagol, M., & Onditi, A. (2016). Relationship between Credit risk management and financial performance: empirical evidence from microfinance banks in Kenya. Research journal of finance and accounting, 7(6), 2222-2847.
Otitolaiye, E. I. (2020). Credit Risk Management and the Financial Performance of Deposit Money Banks: Some New Evidence. Journal of Risk and Financial Management, 16(7), 302.
Oyadonghan, K. J., & Bingilar, P. F. (2014). The impact of effective credit policy on liquidity of manufacturing companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(7), 88-100.
Ozurumba B. A. (2016), Impact of Non-Performing Loans on the Performance of Selected Commercial Banks in Nigeria; Research Journal of Finance and Accounting, ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.16, 2016 www.iiste.org
Petersen, M. A. & Rajan, R. G. (1995). The effect of credit market competition on lending relationships; The Quarterly Journal of Economics; 110(2): 407- 443. http://dx.doi.org/10.2307/2118445
Schwartz, R. A. (1974). An economic model of trade credit. Journal of Financial and Quantitative Analysis, 9(4), 643 - 657.
Suyanto, S. (2021). The effect of bad credit and liquidity on bank performance in Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 451-458.
Tetteh LF. (2012); Evaluation of credit risk management practices in Ghana commercial bank limited (Doctoral dissertation, Kweme Nkruma University of Science and Technology); Available:http://ir.knust.edu.gh/bitstrem/12 3456789
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.
Wuave, T., Yua, H. and Yua, P. M (2020), Effect of Liquidity Management on the Financial Performance of Banks in Nigeria. European Journal of Business and Innovation Research. Vol.8, No.4.pp. 30-44, July 2020 Print ISSN: 2053-4019(Print), Online ISSN: 2053-4027(Online)
Yinka, A. S., Taofeekb, A., Abimbolaa, C., & Olusegunc, A. (2015). Journal of Economic & Financial Studies. Journal of Economic & Financial Studies, 3(01), 1-9.
Published
2024-06-22
How to Cite
Collins, C., & E. Agada, A. (2024). Credit Management and Financial Performance: Evidence from Deposit Money Banks in Nigeria. GPH-International Journal of Business Management, 7(05), 56-71. https://doi.org/10.5281/zenodo.12284454
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