Credit Risk Management and the Performance of Deposit Money Banks in Nigeria: An Error Correction Analysis

Abstract

This paper set out to investigate the impact of credit risk management on the performance of deposit money banks in Nigeria using the ECM and Granger causality techniques in addition to the IRF and VDC methodology. Data for the study were sourced from the CBN Statistical Bulletin and the Annual Reports and Accounts of the NDIC for the period 1989 to 2013. Our findings demonstrate succinctly that the selected credit risk management indicators under study significantly impact on the performance of deposit money banks measured as return on equity, return on total assets, and return on shareholders’ fund respectively. However, the findings report no evidence of significant granger causality relationship between the various credit risk management indicators and the various measures of performance except for a uni-directional granger causality relationship from ROE to RNPD and from ROTA to RNPS respectively. Based on the foregoing, it is recommended that given the observed significant relation between credit risk management and performance, deposit money banks in Nigeria should always pay particular attention to their credit risk management policies in order to significantly improve on the performance of these banks.

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