The Impact of Credit Risk on the Value of Shareholders of Listed Banks in Nigeria

Abstract

Credit risk is the weightiest menace that banks encountered during their operations. Various banking crises have prompted banks to focus more on credit risk management activities, as it is critical for banks to maximize the wealth of their shareholders. The primary goal of businesses is to maximize shareholder wealth, as such DMBs are expected to engage in risk management operations if and only if it adds value to both the firm and the shareholders. Thus, this study seeks to establish the influence of credit risks on the profitability of listed Nigerian DMBs. The ex-post facto method was adopted and the researchers sampled eight (8) out of twenty-four (24) quoted DMBs on the Nigerian Group Exchange. Data was sourced from the audited annual accounts of the sampled DMBs for a period of four years, spanning from 2015-2019. OLS regression techniques revealed that non-performing loans (NPL) have an insignificant influence on the profitability of the sampled DMBs (=-0.141; p, 0.797). This implies that a 1% increase in NPL would lead to a 14% decrease in shareholders' value. Loan and advances (LAD) according to the regression models exert a significant influence on shareholders' value (=7.341; p, 0.004). This implies that an increase in LAD will leads to an increase in the shareholders' value. Nigerian banks should keep their loan and advance portfolios because it makes them more valuable to their shareholders.