Credit Management and Issues of Bad Debts: An Empirical Study of Listed Deposit Banks in Nigeria

This study examines the impact of credit management on firm performance amidst bad debts, among Nigerian deposit banks. Five hypotheses were formulated following the dependent variables of Return on Asset and Tobin Q. The independent variables employed for this study include: Loan Loss Provision, Loan to Deposit Ratio, Equity to Asset Ratio, and Loan Write off. This study is based on ex-post facto research design and employed a panel data set collected from fourteen (14) commercial banks over six years ranging from 2014 to 2019 financial year. We analyzed the data set using descriptive statistics, correlation and Ordinary Least Square Regression Technique. The random effect models established that non-performing loan, loan loss provision and equity to asset impact significantly on banks’ performance in both Return on Asset and Tobin-Q models. This suggests that the sampled banks need to establish efficient arrangements to deal with credit risk management. In all, credit risk management indicators considered in this research are important variables in explaining the profitability of Nigerian commercial banks. However, based on the outcome from the empirical analysis, the study carefully recommends that investors and shareholders in these banks should be aware of the possible use of provisions for losses on non-performing loans by managers for smoothening of profits. The shareholders specifically should be ready to meet optimal agency costs to reduce the manager's information asymmetry by hiring competent internal and external auditors.