Analyzing the Determinants of Credit Risk for Deposit Money Banks in Southern Nigeria (A Case of South-West Nigeria)

Abstract

This study is on analyzing the determinants of credit risk in Nigerian Deposit Money Banks (DMBs). The study employed secondary data, sought from the financial statements of the banks from 2011-2020 and adopted the specific variables and macroeconomic variables thereof. The data were measured with panel data regression method. The findings revealed that Loan Loss Provision/Total Loan, Total Loan/Asset Ratio, Gross Domestic Product Growth, and Inflation had a positive and significant relationship. The results also showed that Bank Liquidity and Capital Adequacy Ratio had a negative and significant relationship. In line with the outcome of the study, it is thus recommended among others that banks’ management should endeavor to develop rigorous and robust credit policies that will enable efficient and effective assessment of the creditworthiness of banks’ customers.