APPRAISAL OF EFFECT OF CREDIT MANAGEMENT ON BANK PROFITABILITY IN NIGERIA

ABSTRACT

The study appraised the effect of credit management on bank profitability in Nigeria from 1995 to 2017. Data used for the study was sourced from Central Bank of Nigeria Statistical Bulletin and Nigerian Deposit Insurance Corporation Annual Report. Bank profitability was proxied by return on assets while lending and credit management were measured by loans and advances, non-performing loans, lending rate and loan loss provision. The tool for data analysis was multiple regression based on Ordinary Least Squares technique. It was found that commercial banks loans and advances had a positive and significant effect on profitability, while non-performing loans ratio had a negative but significant effect during the study period. On the other hand, the effect of lending rate and loan loss provision were insignificant. Based on the findings, it was recommended among other things that commercial banks in Nigeria should strictly adhere to their credit appraisal policies which ensures that only credit worthy borrowers have access to loanable funds. 

TABLE OF CONTENTS

Title Page ﾿ i

Declaration ﾿ ii

Certification ﾿ iii

Dedication ﾿ iv

Acknowledgements ﾿ v

Table of Contents ﾿ vi

Lists of Tables ﾿ vii

Abstract ﾿ viii

Title Page

CHAPTER ONE

1.0 ﾿ Introduction ﾿ 1

1.1 ﾿ Background of the Study ﾿ 1

1.2 ﾿ Statement of the Problem ﾿ 3

1.3 ﾿ Objectives of the Study ﾿ 5

1.4 ﾿ Research Questions ﾿ 5

1.5 ﾿ Research Hypotheses ﾿ 5

1.6 ﾿ Scope of the Study ﾿ 6

1.7 ﾿ Significance of the Study ﾿ 6

1.8 ﾿ Limitation of the Study ﾿ 7

CHAPTER TWO

2.0 ﾿ Literature Review ﾿ 8

2.1 ﾿ Conceptual Framework ﾿ 8

2.1.1 ﾿ Overview of commercial banks’ lending and credit management ﾿ 8

2.1.2 ﾿ Credit risk management ﾿ 10

2.1.3 ﾿ Indicators of credit risk management ﾿ 11

2.1.4 ﾿ Principles of bank lending and credit management ﾿ 14

2.1.5 ﾿ Credit risk management strategies ﾿ 16

2.1.6 ﾿ The benefits of effective credit risk management ﾿ 18

2.1.7 ﾿ Bank profitability (Return on Assets) ﾿ 19

2.2 ﾿ Theoretical Framework ﾿ 21

2.2.1 ﾿ Loan pricing theory ﾿ 21

2.2.2 ﾿ Financial repression hypothesis ﾿ 21

2.2.3 ﾿ Financial economic theory ﾿ 22

2.3 ﾿ Empirical Review ﾿ 23

CHAPTER THREE

3.0 ﾿ Research Methodology ﾿ 38

3.1 ﾿ Research Design ﾿ 38

3.2 ﾿ Nature and Sources of Data ﾿ 38

3.3 ﾿ Method of Data Analysis ﾿ 38

3.4 ﾿ Model Specification ﾿ 39

3.5 ﾿ Description of Research Variables in the Model ﾿ 39

3.5.1 ﾿ Dependent variable ﾿ 40

3.5.2 ﾿ Explanatory variables ﾿ 40

3.6 ﾿ Estimation Procedure ﾿ 41

3.6.1 ﾿ Ordinary least squares (OLS) technique ﾿ 41

3.6.2 ﾿ t-Statistic ﾿ 41

3.6.3 ﾿ F-statistic ﾿ 42

3.6.4 Adjusted coefficient of multiple determination (R ̅^2 ) ﾿ 42

CHAPTER FOUR

4.0 ﾿ Presentation of Data, Analysis and Discussion ﾿ 43

4.1 ﾿ Presentation of Data ﾿ 43

4.2 ﾿ Descriptive Analysis ﾿ 44

4.3 ﾿ Analysis, Discussion of Findings and Hypotheses Testing ﾿ 44

4.3.1 ﾿ Correlation Analysis ﾿ 44

4.3.2 ﾿ Regression Analysis ﾿ 46

4.3.3 ﾿ Test of Hypotheses ﾿ 48

4.4 ﾿ Discussion of Results ﾿ 49

CHAPTER FIVE

5.0 ﾿ Summary of Findings, Conclusion and Discussion ﾿ 51

5.1 ﾿ Summary of Findings ﾿ 51

5.2 ﾿ Conclusion ﾿ 51

5.3 ﾿ Recommendations ﾿ 52

References ﾿ 53

Appendix ﾿ 57