THE EFFECT OF CREDIT RISK MANAGEMENT ON PROFITABILITY OF SELECTED DEPOSIT MONEY BANK IN OSUN STATE
Abstract
ABSTRACT
Thisstudyexaminedthe effect of credit risk management on profitability of selected deposit money banks in Osun state for a period of ten (10) years spreadacross 2015 to 2024. Ten (10) existing Deposit money banks currently listed on theNigerian Exchange Group (NEX) were selected for the purpose of this study using thejudgmentalandconveniencesamplingtechniques.Dataweresourcedfromtheannual reports and other financial statements of the banks selected into the sample.Thedatacomprisesoftime-serieswhichwerepooledintoapaneldatasetandestimated using the panel data regression techniques. Credit management for thepurposeofthisstudywasprocessbythenon-performingloansratio(NPLN),thetotalbaddebtswritten-off(TBDW),theliquiditylevelofbanks(LQDL) andthecapital adequacy ratio (CPAD) of the selected banks while banks performance wasmeasuredbythereturnonequity(ROE)whichmeasurestheearningpowerofshareholders’ fund. The correlation matrix reveals that there is a positive correlationbetween ROE and liquidity level (LQDL) and capital adequacy ratio (CPAD); whilethe non- performing loans ratio (NPLN) and the total bad debts written-off ratio(TBDW) are negatively correlated to the return on equity (ROE). The result howeverrevealed that non-performing loans ratio (NPLN) and total bad debts ratio (TBDW)negatively impacts the return on equity (ROE)- though, only negative impact of non-performing loans ratio (NPLN) is significant at 0.05. Liquidity ratio (LQDL) indicatedby the current ratio and capital adequacy ratio (CPAD) significantly impacts thereturn on equity (ROE) at 0.05 and 5% significance levels respectively. This studyrecommended that Management of deposit money banks in Nigeria should enhancetheirskillsincreditanalysisandloanadministrationwhileCBNandotherregulatorybodiesshouldpaymoreattentiontobankscompliancetorelevantprovisionsofBOFIA (1999)andprudentialguidelines.
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