EFFECTS OF BOARD CHARACTERISTICS ON CREDIT RISK (A STUDY OF DEPOSIT MONEY BANKS)

ABSTRACT This study examines the effect of board characteristics on credit risk in deposit money banks, with particular emphasis on board size, board independence and board diversity. The banking sector plays a critical role in financial stability, and understanding how governance structures influence risk exposure is essential for ensuring sound management practices. Secondary data were sourced from published annual reports of selected deposit money banks in Nigeria over a defined period. Panel data regression techniques were employed to analyze the relationship between board attributes and credit risk, measured through non-performing loans and related indicators. The findings reveal that not all board characteristics have uniform effects on credit risk management. While board independence showed no significant impact, both board size and board diversity demonstrated significant relationships with credit risk, indicating that banks should prioritize these characteristics in their governance structures. The significant effect of board size suggests that Nigerian banks need to carefully consider the optimal number of directors to ensure effective credit risk oversight. Implying that too few directors may lack the necessary expertise and oversight capacity, while too many may lead to coordination problems and delayed decision making. The significant relationship between board diversity and credit risk underscores the importance of heterogeneous board composition. Diverse boards bring varied perspectives, experiences and skills that enhance risk assessment capabilities and decision- making quality in credit-related matters. The lack of significant impact of board independence on credit risk suggests that the effectiveness of corporate governance mechanisms may be context-specific. In the Nigerian banking environment, independence alone may not guarantee better risk management, possibly due to factors such as regulatory environment, institutional framework, or cultural considerations. The findings indicate that Nigerian banks should adopt a strategic approach to board composition that emphasizes size optimization and diversity enhancement rather than focusing solely on independence. This suggests a need for more nuanced corporate governance practices tailored to the local banking environment.