Effect of Liquidity and Profitability on Credit Risk Management of Listed Deposit Money Banks in Nigeria

Abstract

This study examined the moderating effect of liquidity on profitability and credit risk management of listed deposit money banks in Nigeria. Ex-post facto research design was adopted to define the structure and strategy of the study, while the target population was all the listed deposit money banks in Nigeria as at 31st December, 2023 which were 14 in number. Out of the 14 banks 12 were purposively chosen based on their complete annual reports and accounts over the period of the study (2019-2023). Panel regression analysis was used to analyze the collected data, and the results shows a positive but insignificant direct effect of returns on assets on credit risk management of the banks. However, returns on equity revealed a positive and significant effect on credit risk management of the banks. While, returns on capital employed was found to have negative but significant effect on credit risk management of the banks. Furthermore, liquidity management shows positive and significant moderating effect on returns on assets, returns on equity, returns on capital employed and credit risk management of the banks. Therefore, the study concluded that: effective liquidity management have positive and significant moderating effect on profitability and credit risk management of listed deposit money banks in Nigeria. This signifies that, effective liquidity management would improve banks profitability, and subsequently improve credit risk management of the banks. Therefore, this study recommends that; the management of listed deposit money banks in Nigeria should pay adequate attention on liquidity management, which would improve profitability and subsequently enhance credit risk management.