Nigerian Journal of Banking and Financial Issues (NJBFI)

Implication of financial intermediation on credit Risk management in Nigerian banking industry

Abstract

This study examined the implication of financial intermediation on credit risk management in Nigerian banking industry. Particular focus was given to the implication of loan to deposit ratio, operating expense to operating income and capital adequacy ratio on non-performing loans of deposit money banks (DMBs) in Nigeria. The quantitative research design was adopted in the study. Panel data spanning 2016-2021 was gathered for Tier 1 DMBs First Bank, United Bank for Africa, Guarantee Trust Bank, Access Bank and Zenith Bank (FUGAZ) in Nigeria. Data gathered was estimated using descriptive statistics, correlation analysis, multicollinearity test, pooled OLS, fixed and random effect analysis and other post estimation tests. Discoveries from the study indicated that capital adequacy ratio exerts negative significant impact on nonperforming loan ratio of Nigerian deposit money banks with coefficient estimate of -6.5150 (p=0.006<0.05); loan to deposit ratio exerts positive and significant effect on nonperforming loan ratio of Nigerian deposit money banks with coefficient estimate 2.1753 (p=0.098>0.05); operating expense to operating income exerts negative and significant effect on nonperforming loan ratio of Nigerian deposit money banks with coefficient estimate -1.4189 (p=0.017<0.05) and firm size exerts positive insignificant impact on nonperforming loan ratio of Nigerian deposit money banks with coefficient estimate .2424 (p=0.208>0.05). Hence, the study concluded that financial intermediation maintains noticeable implication on credit risk management of deposit money banks in Nigeria. Based on findings established in the study, it was suggested amongst others that Management of DMBs should deploy measures to raise funds and keep its liquidity position up as this guarantees their sustainable survival, while the CBN should improve regulatory control that guarantees relatively sound credit risk approach for DMBs.