Credit management and performance of deposit money banks in Nigeria

Abstract
Granting of loans and advances remains one of the ways deposit money banks generate income to boost their performance. However, as important as this appears, it has led to incidence of rising non-performing loans in the credit portfolio of deposit money banks. Against this backdrop, this study investigated the effect of credit management on the performance of deposit money banks in Nigeria. The study employed secondary data sourced from Central Bank of Nigeria (CBN) statistical bulletin and annual reports of Nigeria Deposit Insurance Corporation (NDIC) from 1986 to2016. From the data, bank performance (dependent variable) was measured by return on assets (ROA) while credit management (independent variable) was proxied by ratio of non-performing loans to total loans (NPFL), bank deposit (BDEP) and lending rate (LENDR). The study employed autoregressive distributed lag (ARDL) technique to examine the effect of the independent variables on the dependent variable. The findings revealed that ratio of non-performing loans to total loans with coefficient of -0.362733 had negative effect in the short run but produced positive effect on performance of deposit money banks in the long run as indicated by the coefficient of 1.583503. On the other hand, bank deposit exhibited positive influence while lending rate had negative effect on the dependent variable both in the short run and long run. Given the overall significance of the model, it was concluded that credit management had significant effect on performance of deposit money banks in Nigeria. Thus, it was recommended that bank management should endeavor to reduce incidence of non-performing loans by conducting thorough assessment of any credit application prior to approval, especially customer’s character and previous credit record. Also, banks should closely monitor customer’s investment activities to ensure that granted loans are not diverted to unprofitable ventures which the loans are not initially meant for.