Original Research Article | OPEN ACCESS
Credit Risk and the Performance of Deposit Money Banks in Nigeria

Jeffrey Osaruyi Erhabor1 , Ofiafoh Eiya2

1Faculty of Management Sciences, Department of Banking and Finance, Ambrose Alli University, Ekpoma.; 2Faculty of Management Sciences, Department of Accounting, University of Benin, Benin City..

For correspondence:-  Jeffrey Erhabor   Email: osaruyierhabor@yahoo.com

Received: March 2, 2020        Accepted: March 31, 2020        Published: March 31, 2020

Citation: Erhabor JO, Eiya O. Credit Risk and the Performance of Deposit Money Banks in Nigeria. Account Tax Rev 2020; 4(1):46-62 doi:

© 2020 The authors.
This is an Open Access article that uses a funding model which does not charge readers or their institutions for access and distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0) and the Budapest Open Access Initiative (http://www.budapestopenaccessinitiative.org/read), which permit unrestricted use, distribution, and reproduction in any medium, provided the original work is properly credited..


This paper examined the impact of banking risks on the Performance of Deposit Money Banks (DMBs) in Nigeria. Changes in financial performance were examined based on the relative impact of credit risk. The study specifically focused on eighteen Deposit Money Banks (DMBs) listed on the Nigerian Stock Exchange, including a coverage period of nineteen years (2000 to 2018). Panel data fixed effect econometric statistical technique was used in the estimation of the specified model was used in the analysis of the data as well as investigating the hypotheses of the study. The results of the empirical analysis revealed that Credit risk does not have any significant effect on the performance of deposit money banks in Nigeria at the 5% level of significance. The only banking risk that negatively affected the performance of deposit money banks in Nigeria at the 5% level of significance is liquidity risk. Liquidity risk as measured by total loan to total asset ratio (LTAR) and total loan to deposit ratio (LDR) are the only factors that significantly affect the performance of Deposit Money Banks in Nigeria, within the period of investigation. Based on the results the study recommends among others that, management should continuously lay more emphasis on liquidity risk management in order to ensure that banks have adequate cash to meet the yearnings of depositors daily, and by so doing, prevent loss of confidence, panic withdrawals and eventual bank failure. Also, a more robust risk management that is fully in compliance with BASEL II and III accords and the prescribed ratio as provided by the regulatory institution (Central Bank of Nigeria), should be vigorously pursued in this regard. Doing this will go a long way to minimize the effect of banking risks on the overall performance of banks in Nigeria.

Keywords: Credit risk, Performance, Deposit Money Banks, Return on Asset, Non-Performing Loans, Loan Loss Provisions

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