EFFECT OF CREDIT RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA (DBM’S)

ABSTRACT This study investigated the effect of credit risk management on the financial performance of Deposit Money Banks (DBMs) in Nigeria, focusing on three specific aspects: Loan Loss Provision, Non-Performing Loans (NPLs), and Capital Adequacy Ratio (CAR). Utilizing a quantitative research design, the study analyzes secondary data from the financial statements of 22 commercial banks over a ten-year period (2015-2024). The findings reveal that Loan Loss Provision does not significantly impact the Return on Assets (ROA) of banks, indicating that banks may not effectively utilize provisions to enhance profitability. Conversely, a significant positive relationship is found between NPLs and financial performance, suggesting that some banks leverage non-performing loans for recovery strategies, thereby improving their financial outcomes. The study also examines the relationship between Capital Adequacy and financial performance, revealing that variations in CAR do not significantly influence profitability. These results highlight the complexity of credit risk management within the Nigerian banking sector, indicating that while Loan Loss Provision and capital adequacy are crucial for financial stability, their direct impact on performance is limited. In contrast, NPLs can be managed in ways that enhance profitability, emphasizing the need for effective risk management strategies. Based on the findings, this research recommends that banks reassess their Loan Loss Provision strategies, focusing on proactive risk management practices and recovery strategies for non-performing loans. Additionally, it suggests that banks prioritize operational efficiency alongside capital management to optimize their financial performance.