Effect of Credit Risk Management on Financial Performance of listed Microfinance Banks in Nigeria

Abstract

This study examines the effect of credit risk management on financial performance in listed microfinance banks in Nigeria. Data were collected from annual report and accounts of the two microfinance banks listed on the Nigerian Stock Exchange within 2012 to 2017. Data collected were subjected to statistical analysis of Pearson correlation, and Multiple Regression, Panel regression. The results revealed that, Capital adequacy ratio is negative and has significant effect on financial performance. Ratio of Non-performing loans to total loan is positive and has a significant impact on financial performance. Ratio of loan loss provision is negative and has a significant impact on financial performance of microfinance banks in Nigeria. The control variable, bank size and inflation are negative and not significant with financial performance. This study showed that there is a significant impact of credit risk management on financial performance of microfinance banks in Nigeria and recommended that microfinance banks in Nigeria should only give loans to borrowers with better future inflows, this is in line with the anticipated income theory under pining in this study.

Keywords: Credit Risk Management, Financial Performance, Microfinance Banks.

DOI: 10.7176/RJFA/11-18-13

Publication date:September 30^th 2020