THE EFFECT OF RISK MANAGEMENT ON THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

This study examines the effect of risk management on the performance of Deposit Money Banks (DMBs) in Nigeria using annual time series data covering the period 2000–2023. The study focuses on three key indicators of risk management—Capital Adequacy Ratio (CAR), Non-Performing Loans (NPLs), and Loan-to-Deposit Ratio (LDR)—and evaluates their influence on bank performance, proxied by Return on Equity (ROE). Guided by Agency Theory, the study employs an econometric approach involving model specification, diagnostic tests, and hypothesis testing to determine the statistical relationship between the variables. The findings reveal that the Capital Adequacy Ratio has a significant effect on the return on equity of Nigerian DMBs, indicating that well-capitalized banks demonstrate stronger financial resilience and profitability. Non-Performing Loans show a significant negative impact on bank performance, underscoring the critical role of credit risk management in sustaining profitability. The Loan-to-Deposit Ratio also significantly affects ROE, suggesting that effective liquidity management is essential for optimizing bank performance. The study concludes that risk management practices play a crucial role in enhancing the financial stability and profitability of Nigerian Deposit Money Banks. The research recommends that banks strengthen their credit risk assessment procedures, maintain adequate capital buffers, and adopt balanced liquidity management strategies to improve overall performance. Regulatory authorities such as the Central Bank of Nigeria (CBN) are encouraged to continue enforcing risk-based supervision and promoting policies that support sustainable banking practices. The study contributes to empirical literature by providing updated evidence on the nexus between risk management and bank performance in Nigeria.