Credit Risk Management and Interest Income of Banks in Nigeria

• Main Authors: Fapetu, Oladapo, Seyingbo, Oluwagbenga Abayomi, Owoeye, Segun Daniel
• Format: Article
• Language: English
• Published: "Nicolae Titulescu" University of Bucharest 2017-06-01
• Series: Computational Methods in Social Sciences
• Subjects: Credit risk; non-performing loans; interest income; return on asset
• Online Access: http://cmss.univnt.ro/wp-content/uploads/vol/split/vol_V_issue_1/CMSS_vol_V_issue_1_art.003.pdf

This study examines the impact of credit risk on the interest income of banks in Nigeria between the period of 2000 and 2014. Unbalanced panel data analysis was used to estimate the model with unit root test, Breusch Pagan test, trend analysis, descriptive statistics, Perasan CD Test, heteroskedasticity test, heterogeneity test, serial correlation test, Jarquebera, F-statistics, random effect, fixed effect, time effect, Prob value, Hausman test and rho as the estimation parameters. The study discovered that NPL, LLP and LA are statistically significant in explaining the variation in interest income across banks in Nigeria, while LA/TD is not statistically significant in explaining the variation in interest income across banks in Nigeria. Based on this, the study recommends that regular update of credit policy and adequate measures to monitor loans should be put in place by banks in Nigeria, as these measures will reduce bad loans and ultimately cause a reduction in loan loss provisions.