DETERMINANTS OF CREDIT RISK IN THE NIGERIAN BANKING INDUSTRY
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Ariyibi Mayowa Ebenezer(1*)
Department of Banking and Finance, Faculty of Administration and Management Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State
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Efemena Emily Opubor(2)
Aradel Energy Limited, Accounting Department, Lagos
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Olowofela Olusola Enitan(3)
Department of Banking and Finance, Faculty of Administration and Management Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State
(*) Corresponding Author
Keywords:
Credit Risk, Profitability, Liquidity, Corporate Governance, Macroeconomic
Abstract
The deposit money banks are faced with the problem of credit risk, which occurs from their intermediary role in the economy, which is channeling customers’ deposits from the surplus sector to the deficit/productive sector to improve their performance and stimulate financial stability and growth. It is imperative to examine the internal and external factors that influence the credit risk component of the deposit money banks in Nigeria. This study examines the determinants of credit risk in the Nigerian banking industry. The secondary data was sourced from twelve deposit money banks listed on the Nigerian Stock Exchange Group from 2019 to 2023. The static regression analysis was employed to determine the inference of the objective. The findings from the fixed effect model revealed that board size, operating efficiency, bank size, gross domestic product growth rate, and unemployment rate have a significant effect on the non-performing loan ratio, while return on assets, board independence, loan-to-deposit ratio, debt-to-equity ratio, loan-to-total asset ratio, and inflation rate have an insignificant effect on the non-performing loan ratio. Therefore, it is recommended that deposit money banks in Nigeria integrate internal governance enhancements with macroeconomic stability, which is essential for effectively managing non-performing loans in Nigerian banks. Collaborative efforts between banks, regulators, and policymakers are critical to achieving sustainable credit risk management.
Keywords: Credit Risk; Profitability; Liquidity; Corporate Governance; Macroeconomic
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References
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Kabir, M. N., Dulal M,., & Huda, R. N. (2022). Determinants of credit risk: A comparative analysis between Islamic and conventional banks in Bangladesh. The Singapore Economic Review, 67(01), 349-379.
Kartikasary, M. et al. (2020). Factors affecting the non-performing loans in Indonesia‘, Accounting, 97–106. doi:10.5267/j.ac.2019.12.003.
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Messai, A.S. and Jouini, F. (2013). Micro and Macro Determinants of Non-performing Loans‘, International Journal of Economics and Financial Issues, 3(4), 852–860.
Misman & Bhatti (2020). The determinants of credit risk: An evidence from ASEAN and GCC Islamic banks. Journal of Risk and Financial Management, 13(89) 1-22.
Misman, F.N. and Bhatti, M.I. (2020). The determinants of credit risk: An evidence from ASEAN and GCC Islamic Banks‘, Journal of Risk and Financial Management, 13(5), 89. doi:10.3390/jrfm13050089.
Muskan, S. (2021).Types of Risk and its management in banking.
Naili, M., & Lahrichi, Y. (2022). The determinants of banks' credit risk: Review of the literature and future research agenda. International Journal of Finance & Economics, 27(1), 334-360.
Nathan, S., Ibrahim, M. and Tom, M. (2020). Determinants of Non-Performing Loans in Uganda‘s Commercial Banking Sector‘, African Journal of Economic Review, 8(1),26–47. doi:http://dx.doi.org/10.22004/ag.econ.301049.
Nguyen, D. T., & Tran, H. T. (2017). The analysis of major credit risk factors-The case of the Vietnamese commercial banks. International Journal of Financial Research, 8(1), 33-42.
Norlida, A. M., Ng Y. T. & Rohani, M. (2015). The determinants of credit risk in Malaysia. Procedia - Social and Behavioural Sciences 172, 301 – 308.
Olaoye, F., & Ojuolape, T. C. (2019). Credit risk disclosure compliance and bank performance in Nigeria: Case-study of Zenith bank. Archives of Business Research, 1, 1 – 14.
Omobolade, O. S., Seriki, A. I., & Kola, O. J. (2020). Determinants of bank credit risk: evidence from deposit money banks in Nigeria. Islamic university multidisciplinary journal, 7(3), 93-102.
Patrick, O. N., Ikenna, J. E.and Ekemezie, L. I. (2017). The impact of credit risk management on deposit money banks performance in Nigeria. Nigerian Journal of Managemen Sciences, 6, (1). 120 –134.
Priyadi, U. et al. (2021). Determinants of credit risk of Indonesian Sharīʿah Rural Banks,‖ ISRA International Journal of Islamic Finance, 13(3), 284–301. Available at: https://doi.org/10.1108/ijif-09-2019-0134.
Rahman, M. A., Asaduzzaman, Md. and Hossin, Md.S. (2017). Impact of financial ratios on non-performing loans of publicly traded commercial banks in Bangladesh‘, International Journal of Financial Research, 8(1), 181.
doi:10.5430/ijfr.v8n1p181.
Rajha, K.S. (2017). Determinants of non-performing loans: Evidence from the Jordanian banking sector‘, Journal of Finance and Bank Management, 4(1), 125–136. doi:10.15640/jfbm.v5n1a5.
Rejda, G. E. (2011). Principles of risk management and insurance. Pearson Education India. risk-company.asp.
Rizkullah, A. R., & Suhel, S. A. (2023). Determinants of Credit Growth: An Empirical Study of Commercial Banks in Indonesia. Journal of Applied Economic Research, 22(2), 404-424.
Sanusi, L. S. (2012). Banking reform and its impact on the Nigerian economy. CBN Journal
Siddique, A., Khan, M. A., & Khan, Z. (2022). The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks. Asian Journal of Accounting Research, 7(2), 182-194.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410.
Sukmana, R. (2015). “Determinants of non performing financing in Indonesian Islamic banks”, Islamic Research and Training Institute (IRTI) Working Paper Series 1436-03, available at: https://irti.org/product/ determinants-of-non-performing-financing-in-indonesian- islamic-banks/
(accessed 27 July 2020).
Tisa, M. A. and Suresh G. (2023). Determinants of credit risk: Empirical evidence from Indian commercial banks. Banks and Bank Systems, 18(2), 88- 100. doi:10.21511/bbs.18(2).2023.08
Widarjono, A., Anto, M.B.H. and Fakhrunnas, F., (2020). “Financing risk in Indonesian Islamic rural banks: do financing products matter?”, The Journal of Asian Finance, Economics and Business, 7(9), 305-314.
Zheng, C., Sarker, N. and Nahar, S. (2018). Factors affecting bank credit risk: An empirical insight, Journal of Applied Finance & Banking, 8(2), 45–67.
Ahmet, I. & Harun, C. (2019). Credit Risk Management: A Panel Data Analysis on the Islamic Banks in Turkey. 3rd World Conference on Technology, Innovation and Entrepreneurship 947–954.
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500. https://doi.org/10.2307/1879431
Akhanolu, I. A., Ehimare, O. A., Mathias, C. M., Deborah, K. T., & Yvonne, O. K. (2020). The Impact of Credit Risk Management and Macroeconomic Variables on Bank Performance in Nigeria’. WSEAS Transactions on Business and Economics, 17(1), 956-965.
ALrfai, M.M., Salleh, D.B. and Waemustafa, W. (2022). Empirical examination of credit risk determinant of commercial banks in Jordan,‖ Risks, 10(4),85. Available at: https://doi.org/10.3390/risks10040085.
Bala, J. E., & Alao, M. M. (2021). Determinants of Bank Asset Quality among the Listed Deposit Money Banks in Nigeria. International Journal of Technology Innovation and Management: 2(1).
Buthiena, K. (2019). Determinants of Bank Credit Risk: Empirical Evidence from Jordanian Commercial Banks. Academy of Accounting and Financial Studies Journal 23(3).
Central Bank of Nigeria (CBN, 2018). Deposit money banks activities report. Available at
Central Bank of Nigeria (CBN, 2022). Deposit money banks activities report. Available at
Chiamaka, A. (2023). Determinants of Credit Default in Banking in Nigeria. International Journal of Modern Risk
Management, 1(2), 33-44.
Echobu, J., & Nkiru Philomena, O. (2019). Credit risks and financial performance of Nigerian banking industry. Amity Journal of Finance ADMAA, 4(1).
Giang, N. T., Anh, N. D., Chi, V. T. T., Anh, N. B., & Dinh, N. T. Q. (2024). Determinants of Credit Risk under Basel II Accord: Case of Vietnam Banking Sector. In 11th International Conference on Emerging Challenges: Smart Business and Digital Economy 2023 (ICECH 2023) (194-205). Atlantis Press.
Hambolu, V. O., Omuemu, S. O., & Majeed, A. T. A. (2022). The impact of credit risk on the profitability of commercial banks in Nigeria. Fuoye Journal of Finance and Contemporary Issues, 3(2).
Hamisu, M., Ibrahim, M. A., & Zango, A. G. (2021). Credit risk management and financial performance of selected banks in Nigeria. Polac Economic Review (PER), 1(1), 1-12.
https://tapchinganhang.gov.vn/cac-yeu-to-anh-huong-den-rui-rotin-dung-cua-cac-ngan-hang-thuong-mai-viet-nam.htm.
Jorion, P. (2009). Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc.
Kaaya, I. and Pastory, D. (2013). Credit Risk and Commercial Banks Performance in Tanzania: a Panel Data Analysis‘, Research Journal of Finance and Accounting, 4(16), 55–62.
Kabir, M. N., Dulal M,., & Huda, R. N. (2022). Determinants of credit risk: A comparative analysis between Islamic and conventional banks in Bangladesh. The Singapore Economic Review, 67(01), 349-379.
Kartikasary, M. et al. (2020). Factors affecting the non-performing loans in Indonesia‘, Accounting, 97–106. doi:10.5267/j.ac.2019.12.003.
Khan, M.A., Siddique, A. and Sarwar, Z. (2020). Determinants of non-performing loans in the banking sector in developing state,‖ Asian Journal of Accounting Research, 5(1), 135– 145. Available at: https://doi.org/10.1108/ajar-10-2019-0080.
Kihuro, J. M. & Iraya, C. M. (2018) Credit risk management and bank performance: A Critical literature Review. IOSR Journal of Economics and Finance 9(6), 9-13.
Le, T. T., Doan, N. M., & Bui, G. T. (2021). Factors affecting credit risk of commercial banks in Vietnam. Retrieved from Banking Magazine:
Mahyoub, M. and Said, R.M. (2021). Factors influencing non-performing loans: Empirical evidence from commercial banks in Malaysia‘, Pressacademia, 8(3), 160–166. doi:10.17261/pressacademia.2021.1448
Maverick, J. B. (2021). Financial Risk: The major kinds that companies face. https://www.investopedia.com/ask/answers/062415/what-are-major-categories-financial
Messai, A.S. and Jouini, F. (2013). Micro and Macro Determinants of Non-performing Loans‘, International Journal of Economics and Financial Issues, 3(4), 852–860.
Misman & Bhatti (2020). The determinants of credit risk: An evidence from ASEAN and GCC Islamic banks. Journal of Risk and Financial Management, 13(89) 1-22.
Misman, F.N. and Bhatti, M.I. (2020). The determinants of credit risk: An evidence from ASEAN and GCC Islamic Banks‘, Journal of Risk and Financial Management, 13(5), 89. doi:10.3390/jrfm13050089.
Muskan, S. (2021).Types of Risk and its management in banking.
Naili, M., & Lahrichi, Y. (2022). The determinants of banks' credit risk: Review of the literature and future research agenda. International Journal of Finance & Economics, 27(1), 334-360.
Nathan, S., Ibrahim, M. and Tom, M. (2020). Determinants of Non-Performing Loans in Uganda‘s Commercial Banking Sector‘, African Journal of Economic Review, 8(1),26–47. doi:http://dx.doi.org/10.22004/ag.econ.301049.
Nguyen, D. T., & Tran, H. T. (2017). The analysis of major credit risk factors-The case of the Vietnamese commercial banks. International Journal of Financial Research, 8(1), 33-42.
Norlida, A. M., Ng Y. T. & Rohani, M. (2015). The determinants of credit risk in Malaysia. Procedia - Social and Behavioural Sciences 172, 301 – 308.
Olaoye, F., & Ojuolape, T. C. (2019). Credit risk disclosure compliance and bank performance in Nigeria: Case-study of Zenith bank. Archives of Business Research, 1, 1 – 14.
Omobolade, O. S., Seriki, A. I., & Kola, O. J. (2020). Determinants of bank credit risk: evidence from deposit money banks in Nigeria. Islamic university multidisciplinary journal, 7(3), 93-102.
Patrick, O. N., Ikenna, J. E.and Ekemezie, L. I. (2017). The impact of credit risk management on deposit money banks performance in Nigeria. Nigerian Journal of Managemen Sciences, 6, (1). 120 –134.
Priyadi, U. et al. (2021). Determinants of credit risk of Indonesian Sharīʿah Rural Banks,‖ ISRA International Journal of Islamic Finance, 13(3), 284–301. Available at: https://doi.org/10.1108/ijif-09-2019-0134.
Rahman, M. A., Asaduzzaman, Md. and Hossin, Md.S. (2017). Impact of financial ratios on non-performing loans of publicly traded commercial banks in Bangladesh‘, International Journal of Financial Research, 8(1), 181.
doi:10.5430/ijfr.v8n1p181.
Rajha, K.S. (2017). Determinants of non-performing loans: Evidence from the Jordanian banking sector‘, Journal of Finance and Bank Management, 4(1), 125–136. doi:10.15640/jfbm.v5n1a5.
Rejda, G. E. (2011). Principles of risk management and insurance. Pearson Education India. risk-company.asp.
Rizkullah, A. R., & Suhel, S. A. (2023). Determinants of Credit Growth: An Empirical Study of Commercial Banks in Indonesia. Journal of Applied Economic Research, 22(2), 404-424.
Sanusi, L. S. (2012). Banking reform and its impact on the Nigerian economy. CBN Journal
Siddique, A., Khan, M. A., & Khan, Z. (2022). The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks. Asian Journal of Accounting Research, 7(2), 182-194.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410.
Sukmana, R. (2015). “Determinants of non performing financing in Indonesian Islamic banks”, Islamic Research and Training Institute (IRTI) Working Paper Series 1436-03, available at: https://irti.org/product/ determinants-of-non-performing-financing-in-indonesian- islamic-banks/
(accessed 27 July 2020).
Tisa, M. A. and Suresh G. (2023). Determinants of credit risk: Empirical evidence from Indian commercial banks. Banks and Bank Systems, 18(2), 88- 100. doi:10.21511/bbs.18(2).2023.08
Widarjono, A., Anto, M.B.H. and Fakhrunnas, F., (2020). “Financing risk in Indonesian Islamic rural banks: do financing products matter?”, The Journal of Asian Finance, Economics and Business, 7(9), 305-314.
Zheng, C., Sarker, N. and Nahar, S. (2018). Factors affecting bank credit risk: An empirical insight, Journal of Applied Finance & Banking, 8(2), 45–67.
Published
2025-07-01
How to Cite
Ebenezer, A., Opubor, E., & Enitan, O. (2025). DETERMINANTS OF CREDIT RISK IN THE NIGERIAN BANKING INDUSTRY. Journal of Management : Small and Medium Enterprises (SMEs), 18(2), 839-856. https://doi.org/10.35508/jom.v18i2.19807
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Articles
