ABSTRACT

The study examined the effect of credit risk management on the financial performance of commercial banks in Nigeria, the specific objectives were to ascertain the effect of capital adequacy ratio, loan loss provision ratio and non-performing loan ratio on return on asset, return on equity and return on investment, the study adopted ex-post facto research design and extracted data from cross section of commercial banks over a period of 6 years. Capital adequacy ratio, loan loss provision ratio and non-performing loan ratio were jointly used as proxies for credit risk management and served as joint in dependent variable while return on asset, return on equity and return on investment were each employed as dependent variable. Based on the nature of data extracted, the panel least squares method of data analysis was used to investigate the relationship of the variables. It was found that credit risk management have significant effect on both return on asset, return on equity and return on investment. The study therefore concludes that credit risk management significantly affects performance of commercial banks and recommends that banks need to place and devise strategies that will not only limit the banks exposition to credit risk but will develop performance and competitiveness of the banks, and banks should establish a proper credit risk management strategy by conducting sound credit evaluation before granting loans to customers. There is need to strengthened bank lending policy through effective and efficient regulatory supervision and monitoring when facility is given out especially during utilization of the facility by the borrower.