IMPACT OF CREDIT RISK ON FINANCIAL PERFORMANCE OF BANKS IN THE NIGERIA

Nuhu Otaru Isah

Department of Accountancy

Federal Polytechnic, Bali

Email: isahnuhu80@gmail.com

ABSTRACT

The objective of the study is to empirically examine the quantitative effect of credit risk on the performance of commercial banks in Nigeria, considering variables related to lending activities, over the period of 10 years (2006-2015). The empirical investigation uses the accounting measure of Return on Assets (ROA), which is the dependent variable, to represent Banks’ performance. The study fundamentally involves both descriptive and econometrics techniques. The econometrics method used in the study basically involves assessing the impact of selected internal variables, the provision to total loans, loan to total asset, credit administration (cost to total loans) and natural logarithm of total asset (Economies of scale), on the performance of the banking sector. To this end multiple linear regression models is used to measure the relative weighting of the independent variables above on a dependent variable. The findings show that there is significant but inverse relationship between ROA and the ration of default rate, per loan asset ratio and capital adequacy ratio. The study recommends that management need to be certain in setting up a credit policy that will negatively affect performance and the CBN should for policy purpose regularly assess the lending attitude of financial institution in Nigeria

Keywords: ROA, Credit Risk, Bank, Performance, Nigeria.