RELATIONSHIP BETWEEN CREDIT RISK MANAGEMENT PRACTICES AND THE FINANCIAL OUTCOMES OF NIGERIAN FINANCIAL FIRMS
Keywords:
Credit, Financial Management, Outcomes, RiskAbstract
The study examined the effect of Credit Risk Management Practices on the Financial Outcomes of Nigerian Financial Firms. The specific objectives are to; Ascertain the effect of loan impairment to equity ratio Return on Capital Employed of listed financial service firms in Nigeria. Determine the effect of the total loan to total deposit ratio on the Return on Capital Employed of listed financial services firms in Nigeria. The study employed an ex post facto research design since the data needed for it was already included in the financial statements and annual reports of Nigeria's financial services sector. The study revealed that Loan impairment to equity ratio has an insignificant positive effect on the Return on Capital Employed given that P > |t| = 0.469 > 0.05 and t = 0.73<|2 and also Total loan-to-deposit ratio has statistically no significant effect on Return on Capital Employed (P>|t| = 0.172 > 0.05 and t = 1.37 < |2|) of listed financial services firms in Nigeria. The study concluded that credit risk management practices have insignificant positive effects on the financial outcomes of Nigerian financial firms. The study recommended that Nigerian financial firms should explore other revenue-generating strategies beyond traditional lending, such as fee-based services, investment portfolios, or digital banking products
References
Aryanti, R., Bambang, S., Saepudin, G. H., Duddy, R., & Khalingga, M. A. (2022). The effect of impaired loan and capital adequacy ratio (CAR) on banking performance at the private national bank (listed Indonesia Stock Exchange 2015-2019). Proceedings of the 1st Adebi International Conference on Management, Education, Social Science, Economics and Technology (AICMEST), Jakarta.
Bishnu, P. B. (2019). Effect of credit risk management on the financial performance of commercial banks in Nepal. European Journal of Accounting, Auditing and Financial Research, 7(5), 87–103.
Faff, R., & Nguyen, H. (2002). On the determinants of derivative usage by Australian companies. Australian Journal of Management, 27(1), 1–24.
Fite, D., & Pfleiderer, P. (1995). Should firms use derivatives to manage risk? In W. Beaver & G. Parker (Eds.), Risk Management: Problems and Solutions (pp. 61–76). McGraw-Hill.
Geczy, C., Minton, B. A., & Schrand, C. (1997). Why firms use derivatives. The Journal of Finance, 52(4), 1323–1354.
Ira, H. (2018). Moderating role of size in the effect of loan to deposit ratio and non-performing loans towards banking financial performance. Advances in Social Science, Education, and Humanities Research, The International Conference on Community Development.
Isanzu, J. S. (2017). The impact of credit risk on the financial performance of Chinese banks. Journal of International Business Research and Marketing, 2(3), 14–17.
Hambolu, V. O., Omuemu, S. O., & Abdulmajeed, A. T. (2022). The impact of credit risk on the profitability of commercial banks in Nigeria. Fuoye Journal of Finance and Contemporary Issues, 3(2), 21–35.
Jayaraman, G., Azad, I., & Ahmed, H. S. (2021). The impact of financial variables on firm profitability: An empirical study of commercial banks in Oman. Journal of Asian Finance, Economics and Business, 8(5), 885–896.
MacCrimmon, K. R., & Wehrung, D. A. (1990). Characteristics of risk-taking executives. Management Science, 36(4), 422–435.
Mayers, D., & Smith, C. W. (1987). Corporate insurance and the underinvestment problem. The Journal of Risk and Insurance, 54(1), 45–54.
Mugnu, W., Odhiambo, S. A., & Momanyi, G. (2019). Effect of debt-to-equity ratio on the financial performance of microfinance institutions in Kenya. International Journal of Research and Scientific Innovation (IJRSI), 2(3), 2321–2705.
National Endowment for Financial Education. (2024). All rights reserved. NEFE is a 501(c)(3) nonprofit.
Nwanna, I. O., & Oguezue, F. C. (2017). Effect of credit management on profitability of deposit money banks in Nigeria. IIARD International Journal of Banking and Finance Research, 8(2), 34–59.
Okonkwo, I. V., & Nwokeji, M. I. (2018). Credit risk management and financial performance of deposit money banks in Nigeria. International Journal of Social Sciences and Management Review, 1(2), 19–35.
Omorokunwa, O. G., & Ogbeide, F. A. (2020). Credit risk management and deposit money banks performance in Nigeria. ICAN Proceedings of the 7th Annual International Academic Conference on Accounting and Financial Disruptive Technology, Accounting Practices, Financial, and Sustainability Reporting.
Ross, S. A. (1973). The economic theory of agency: The principal's problem. The American Economic Review, 63(2), 134–139.
Sally, I. M. (2022). The relationship between credit risk management and financial performance of commercial banks listed in the Nairobi Securities Exchange, Kenya. International Journal of Managerial Studies and Research (IJMSR), 10(5), 88–126.
Smith, C. W., & Stulz, R. M. (1985). The determinants of firm's hedging policies. Journal of Finance and Quantitative Analysis, 20(4), 391–405.
Sugeng, S. (2022). Analysis of the effect of capital adequacy ratio (CAR) and loan to deposit ratio (LDR) on the profit of go public banks in Indonesia Stock Exchange (IDX) period 2016-2021. Economic Journal: Scientific Journal of Accountancy, Management and Finance, 2(1), 43–53.
Tekalagn, G., Lu, A., & Md. Shafuqul, B. (2015). Credit risk management and its impact on performance of commercial banks: A case of Ethiopia. Research Journal of Finance and Accounting, 6(24), 2–21.
Tufano, P. (1996). Who manages risk? An empirical examination of risk management practices in the gold mining industry. The Journal of Finance, 51(4), 1097–1137.
Yu, T. H., Shiow, Y. W., & Jean, Y. (2012). Financial determinants of bank performance in Taiwan. Journal of Economics and Behavioral Studies, 4(12), 691–702.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 European Journal of Marketing and Management Sciences
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
