IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 5 NO. 1 2020

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Credit Risk Management and Profitability of Deposit Money Banks in West African Countries

Onyefulu Deborah Iyinomen, Professor Emma Okoye AND Dr. Orjinta Hope Ifeoma

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Abstract

This study sought to ascertain the relationship between Credit Risk Management and Profitability of Deposit Money Banks (DMBs) listed on Stock Exchange of two selected West African countries using a sample of twenty (20) Deposit Money Banks (DMBs). We covered 10 years period spanning from 2009 to 2018. Ex-Post Facto research design was employed while secondary data were collected and subjected to multiple regression and correlation analysis in order to achieve the study objectives. Three (3) specific objectives and hypotheses were tested and analyzed using descriptive statistics, Pearson correlation analysis and panel regression analysis. Our result revealed that credit risk has negative and significant effect on performance of banks in both Ghana and Nigeria using Return on Equity (ROE) as a proxy for measuring performance which was statistically significant at 1% level of significance. Based on our findings, it was recommended that banks in Nigeria and Ghana should enhance their capacity in credit analysis to reduce the risk of default in repayment. Therefore, to stem the cyclical nature of non-performing loans and increase their profits, West African banks should adopt an aggressive deposit mobilization to increase credit availability and develop a reliable credit risk management strategy with adequate punishment for loan payment defaults.

keywords:

Credit risk, capital adequacy risk, loan loss provision, ROA, West Africa

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