This study examines the impact credit risk management has on the profitability of commercial
banks in Nigeria. The main objective of this material is to show how credit risk parameters are
related to the expected performance of commercial banks in Nigeria. Using the regression analysis,
relationship was drawn between credit risk parameters (which include capital adequacy ratio and
non-performing loan ratio) and the profitability ratio (return on average asset, in particular) of five
big Nigerian banks. Mixed research methodology was adopted in that primary data were sourced
via questionnaires and secondary data were used via annual report of selected banks. Regression
analysis was used to analyse the data. The conclusion drawn from the data analysis shows that
there is a strong relationship between credit risk parameters and returns of the bank implying that
credit risk management has a strong impact on the profitability of commercial banks in Nigeria.
The study recommends that banks’ capital should be matched with their total risk exposure and
if there is an imbalance, new capital requirements are necessary. Insider-related interests in loan
applications should be closely monitored by the regulators to ensure continuous performance of
the loan facility. Also, there should be an extant profiling of loan defaulters whether individuals
or corporate entities.
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