The effect of credit risk on the performance of commercial banks in Nigeria

Abstract

This study examined the effect of credit risk on commercial banks performance. The study is motivated by the damaging effect of classified assets on bank capitalisation and would be of utmost relevance as it addresses how credit risk affects banks' profitability. Secondary data source was explored in presenting the facts. The secondary data are obtained from annual reports and relevant literatures. The result shows that the ratio of loan and advances to total deposit negatively relate to profitability though not significant at 5% and that the ratio non-performing loan to loan and advances negatively relate to profitability at 5% level of significant. This study shows that there is a significant relationship between bank performance (in terms of profitability) and credit risk management (in terms of loan performance). The study recommended that management need to be cautious in setting up a credit policy that will not negatively affect profitability.