Credit Risk Management and Performing Loans Portfolio: Evidence from Quoted Commercial Banks in Nigeria
Vol.6 Issue 2
This study examined the effect of credit risk management on loan portfolio of quoted commercial banks in Nigeria. Cross sectional data was sourced from financial statement of commercial banks and Central Bank of Nigeria Statistical bulletin from 2009-2018. Performing loan portfolio was used as dependent variable while bank risk diversification, Basel risk compliance, risk transfer were used as independent variables. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. Panel unit roots and panel cointegration analysis were conducted on the study. The study found that 66.6 per cent variations in the performing loans portfolio can be accounted for by the independent variables. The random effect results found that bank risk diversification and Basel compliance have positive relationship with performing loans portfolio while risk transfer have negative relationship with performing loans of the commercial banks. From the findings, the study concludes that there is significant relationship between bank risk diversification, Basel compliance and risk transfer and commercial banks performing loan portfolio in Nigeria. we recommend that commercial banks should have loan portfolio management which will help them in making prudent decisions about loan investment mix, Level of loan asset allocation for banking institutions should be balanced against risk of the operating environment. Loan product diversification across different sectors and products has beneficial effects on the credit risk management. Commercial banks in Nigeria should put more emphasis on risk management and credit worthiness analysis, credit score analysis and internal ratings in their credit risk management practices. Risk diversification is one major way of effective credit risk management; therefore, management should enhance risk diversification policies.
