CREDIT RISK AND PROFITABILITY OF BANKS IN NIGERIA

Abstract This study investigates the impact of credit risks on the profitability of banks in Nigeria from 2000 to 2022, employing the Ordinary Least Squares (OLS) regression technique for analysis. The study specifically examines how non-performing loans and liquidity risks influence banks’ return on assets (ROA). The empirical findings reveal that non-performing loans have a negative and insignificant relationship with banks’ profitability, indicating that increases in non-performing loans tend to reduce profitability, though not significantly. Conversely, liquidity risks show a positive but insignificant relationship with profitability, suggesting that the existing banking policies and structures in Nigeria have effectively mitigated liquidity-related challenges, preventing them from adversely affecting performance. Based on these results, the study concludes that banks aiming to improve profitability should minimize non-performing loans, as high default rates reduce loanable funds and, consequently, returns on assets.