The Empirical Effectsof Credit Risk on Profitability of Commercial Banks: Evidence from Nigeria

The study investigates the effect of credit risk on profitability of commercial banks in Nigeria. Specifically, this research is to determine the significant effects of credit risk and its measure indicators, and the relationship between the indicators which influence the profitability of banks. A total 8 commercial banks (SIBs) was selected for the study, from the period 2011-2014. A panel data analysis is employed for the study to provide a robustness to the analytical model which passes all validity and reliability test to be a good fit model for hypotheses testing. Diagnostic test is utilized to test for data reliability and validity. The result of the analysis has revealed that there is a negative and significant relationship between non-performing loan ratio and the profitability, negative and insignificant relationship between debts to total assets ratio and profitability, and a positive and insignificant relationship between debts to equity ratio and profitability of banks during the period of study. In general, the results propose that banks needs to refocus on the effective management of their inherent risk which often affects their profitability and financial viability. Therefore, the study concludes that credit risk impact on profitability of commercial banks in Nigeria.