Credit Risk Management Strategies and Non-Performing Loans of Listed Commercial Banks in Nigeria: Incorporating Banks Listed Via Private Placement.

Abstract

This study examined the effects of credit risk management strategies on the Non-Performing Loans of
listed commercial banks in Nigeria: Incorporating banks listed via private placement. Cross-sectional
data were sourced from the financial statements of commercial banks and the Central Bank of Nigeria
Statistical Bulletin for 2015-2024. Non-Performing Loans are used as the dependent variable, while Bank
Risk Diversification, Basel Compliance, Risk Transfer, Credit Appraisal, Credit Monitoring, and Internal
Lending Policy are used as independent variables. Panel data methodology was employed, and the fixed
effects model was used as the estimation technique at the 5% significance level. Fixed effects, random
effects, and pooled estimates were tested, and the Hausman test was used to determine the best fit. The
estimated regression model found that credit risk management strategies explained 66.9 percent of the
variation in Non-Performing Loans of the quoted commercial banks, and that risk diversification affects
Non-Performing Loans negatively, Basel Compliance affects Non-Performing Loans negatively, Risk
Transfer has a positive effect on Non-Performing Loans, Credit Appraisal and Credit Monitoring affect
Non-Performing Loans negatively. The Internal Lending Policy negatively affects Non-Performing
Loans. The study concludes that the variables have both positive and negative effects on Non-Performing
Loans. It recommends that loan product diversification across different sectors and products has a
favourable influence on credit risk management. Commercial banks in Nigeria should prioritize
enhancing credit risk management practices through a greater emphasis on risk diversification, rigorous
creditworthiness analysis, credit scoring models, and internal rating systems. Effective credit risk
management is intrinsically linked to risk diversification; consequently, banks should strengthen their
risk diversification policies to mitigate potential losses and ensure financial stability.