Evaluating the impact of credit risk management on the financial performance of commercial banks in Nigeria

Abstract

This study was carried out to evaluate the impact of credit risk management on the financial performance of selected commercial banks in Nigeria from (2011-2020) using CAMEL ratios. The CAMEL ratios acronym stands for: Capital adequacy ratio (CAR), Asset quality ratio (AQR), Management ratio (MR), Earnings ratio (ER), and Liquidity ratio (LR), these respective ratios was obtained from Bank focus data base. Quantitative analysis was the most appropriate research design for this study and the SPSS 25 (Statistical Package for Social Science) was used to evaluate the CAMEL ratios on a sample of selected six (6) commercial banks for a duration of 10 years, the output from this software which were descriptive, correlation and regression analysis methodology was interpreted to satisfy the hypothesis test for this study. The findings of this research showed that earnings ratio, liquidity ratio, management ratio showed positive influence on the bank’s financial performance (CAR), but earnings ratio (ROA) had highest significant influence while AQR had a negative and low influence on CAR considering the relationship. However, this study concludes that, based on respective analysis done CAMEL can be used in proxy to determine the financial performance of commercial banks, therefore credit risk management has a significant impact on the financial performance of commercial banks.