An Empirical Investigation of the Impact of Credit Risk Management on Commercial Banks Financial Performance in Nigeria (Generalized Method of Moments Approach)

  • Williams Harley Tega
  • Joseph N. Mojekwu
Keywords: Credit risk, banks, non-performing loans, Credit risk, banks, non-performing loans, regression, capital adequacy ratio

Abstract

This study seeks to empirically investigate the impact of credit risk management on
commercial banks’ performance in Nigeria from 2013 to 2017 on a panel data analysis.
Fifteen commercial banks’ data listed on the floor of the Nigeria stock exchange were
extracted to analyse the study. The data were subjected to jarque-bera test of normality to
remove spurious regression. The key objective of the study is to find out the impacts of
nonperforming loans and performing loans on capital adequacy ratio. To achieve the
objectives, a linear model was formulated and a Generalized Method of Moments (GMM)
was adopted as the method of estimating the parameters. From the GMM regression
results, the study found out that there is a negative relationship between non-performing
loans and capital adequacy ratio in the Nigeria banking sector. The T-calculated value
for NPL is -3.599695 which is compared with 5% statistical value (-3.599695<0.05). We
accept the null hypothesis that non-performing loans do not affect capital adequacy ratio
in the Nigeria banking sector. The coefficient of determination of the GMM shows that
55.35% of the independent variables are captured by the dependent variable, making the
model a good fit. The study therefore recommends an appropriate value at risk model for
credit risk management in the Nigeria banking sector.

Author Biographies

Williams Harley Tega

Department of Financial Studies,
Redeemer’s University, Ede

Joseph N. Mojekwu

Department of Actuarial Science and Insurance,
University of Lagos, Akoka

Published
2019-12-04
How to Cite
Tega , W. H., & Mojekwu, J. N. (2019). An Empirical Investigation of the Impact of Credit Risk Management on Commercial Banks Financial Performance in Nigeria (Generalized Method of Moments Approach). Unilag Journal of Humanities, 7(1), 126-138. Retrieved from http://ihafa.unilag.edu.ng/index.php/ujh/article/view/508