ABSTRACT

This study examined how credit risk affects economic growth in the Nigeria. Specifically it investigates the causal relationship between credit risk and macroeconomic variables in Nigeria in a multivariate frame work using data from 1994 to 2013 and data for credit risk and other macro-economic variables were sourced from various issues ofthe Central Rank ofNigeria Statistical Bulletin. The problem envisaged in this study arose from the negative effect of credit squeeze and its dwindling fortunes on the economy as measured by the gross domestic product which is mixed as the Gross Domestic Product (GDP), in spite of the increase in default rates, continued to remain largely stable. The major objective ofthis study is to examine how credit risk affects economic growth in Nigeria. The specific objectives were to determine the causal relationship between credit risk and economic growth, to identify the macroeconomic variables influencing credit risk in the Nigerian economy and to determine the effects of credit risk on the economic growth of Nigeria. The research design adopted is ex post facto since reliance was placed on already existing data. The resulting data were analyzed using Multiple Regression analysis techniques. In analyzing macroeconomic variables influencing credit risk, the OLS results reveals that the coefficient of multiple determination (R2) with the value of 0.716 indicates that 71.6 percent of the total variation in the credit risk was accounted for by the independent variables included in the model. Credit risk was observed to be significant at 10 percent and positively related to economic growth. The study recommends among others that proper credit risk management should be encouraged as the study shows that there is bidirectional causation between credit risk and economic growth, financial institutions should maintain a moderate interest rate regime that would encourage borrowers to meet their obligations as and when due.