Financial Risk And Performance Of Quoted Deposit Money Banks In Nigeria: A Comparative Analysis Of Credit And Market Risks

Abstract

The performance of Nigerian banks is critical to the nation's economic development, but effectively managing financial risk remains a fundamental challenge. This study investigates the relationship between financial risks—specifically credit and market risks—and the performance of quoted deposit money banks in Nigeria between 2014 and 2023. The objectives include examining the effects of market and credit risks on the financial performance of these banks, measured by return on assets (ROA) and return on equity (ROE). Quantitative secondary data were obtained from the quoted deposit money bank’s statements of financial position. The study employed descriptive statistics and panel regression analysis to explore the relationships between the dependent variables (ROA and ROE) and independent variables (credit risk and market risk). The results revealed that market risk (MARSK) and credit risk (CRESK) account for approximately 65% and 63% of the variations in ROA and ROE, respectively. The regression models suggest ROA = -0.0367631(CRESK) - 0.002511(MARSK) and ROE = -2.376544(CRESK) + 2.176926(MARSK). The study recommends that banks enhance their risk management practices by adopting financial derivatives and asset securitisation strategies to mitigate market and credit risks. Additionally, banks should improve credit screening processes and reduce bad debts to optimise their financial performance.