Strategic Importance of Credit Risk Management to Shareholders’ Wealth-Sustanance in Nigerian Banks: an Empirical Analysis

Abstract

This study highlighted the roles and strategic importance of credit risk management in thebanking industry vis-à-vis sustenance of shareholders’ wealth. The authors examined whether areduction in the non-performing credits in banks’ loan portfolio will reveal a possible correlationbetween effective credit risk management administration and shareholder’s wealth. In testing this,secondary data were sourced from the randomly selected five banks financials (between the period of2006 to 2010) with the use of relevant ratios. Twohypotheses were tested using multiple regressionand correlation method. The result of hypothesis one showed that the calculated r – statistics (r =.429,p<0.05) was greater than the tabulated r – statistics (r =.381) showing that the test was significantat0.05 alpha level. The result of hypothesis two alsoshowed that the calculated r-statistics (r=.403,p<0.05) was greater than tabulated r-statistics (r=.381) at 0.05 level of significance which impliedthat, there was a significant relationship betweencredit risk management and shareholders’ wealth.Based on these results, the authors recommended that, the banking sector should strive to employobjective standards of professionalism, experienceand high integrity in placement of managers whoare responsible for managing the credit portfolios;for this will largely influence the quality of riskassets management and debt recovery which will in-turn engender confidence in the banking industryand ensure the sustenance of shareholders’ wealth and investment