CREDIT RISK MANAGEMENT AND FINANCIAL STABILITY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The motivation for this study arises from the economic crisis of 2020, triggered by the COVID-19 pandemic 
and its subsequent global economic disruptions, which severely impacted financial institutions and other 
sectors of the economy. The primary objective is to assess the relationship between credit risk management 
and financial stability among listed Deposit Money Banks (DMBs) in Nigeria. The study adopts a 
longitudinal research design, covering 14 DMBs listed on the Nigerian Stock Exchange over a 10-year 
period (2013–2022). Due to incomplete data, a sample of 12 banks were analyzed, while Jaiz Bank and 
Unity Bank were excluded. Fixed effect regression analysis was employed to test the hypotheses. The finding 
reveals that NPLR has a negative insignificant effect on financial stability, LDR has a negative significant 
effect on financial stability of sampled listed deposit money banks in Nigeria. The study concludes that bank 
executives should focus on maintaining an optimal LDR while strengthening risk management practices, 
particularly in larger institutions, to safeguard the overall stability of the financial system. The study 
recommend that management of listed deposit money banks should adopt prudent loan portfolio 
management strategies to mitigate liquidity risks. Additionally, enhancing recovery strategies, including 
proactive debt restructuring and enforcement of collateral management. These measures will help 
safeguard the financial system and improve the resilience of Nigerian banks.