EFFECT OF CREDIT RISK MANAGEMENT PRACTICE ON LOAN PORTFOLIO PERFORMANCE IN NIGERIAN DEPOSIT MONEY BANK.

This study examines the effect of credit risk management practices on the loan portfolio performance of eleven listed Deposit Money Banks (DMBs) in Nigeria from 2019 to 2023. The objective was to determine how banks can manage credit risk while sustaining profitability in a competitive and highly regulated financial sector. The study focused on four major credit risk indicators: Non-Performing Loans (NPL), Loan Loss Provisions (LLP), Capital Adequacy Ratio (CAR), and Liquidity Ratio (LR), while Return on Assets (ROA) served as the measure of loan portfolio performance. Secondary data were obtained from banks’ annual reports, Nigerian Exchange Group (NGX) filings, and Central Bank of Nigeria (CBN) publications. Using a quantitative ex-post facto design, the study applied descriptive statistics, correlation analysis, and fixed-effects panel regression techniques. Findings revealed that NPL and LLP have negative and statistically significant effects on ROA, showing that high credit risk exposure and excessive loan provisioning reduce bank profitability. In contrast, CAR and LR showed positive and significant effects, indicating that strong capitalization and efficient liquidity management enhance performance. Overall, the credit risk indicators explained about 68% of the variation in ROA, underscoring their importance in determining loan portfolio outcomes. The study concludes that effective credit risk management is essential for profitability and stability in Nigerian banks. It recommends that DMBs strengthen credit appraisal processes, adopt prudent provisioning, maintain adequate capital buffers, and manage liquidity efficiently to improve returns and protect stakeholders.