Risk Management Practices and Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

Many Nigerian deposit money banks continue to underperform financially due to weak risk management practices. This study investigates the effect of credit and liquidity risk on the financial performance of listed deposit money banks (DMBs) in Nigeria. Specifically, it examines how Non-Performing Loan Ratio (NPLR) and Loan-to-Deposit Ratio (LDR) influence Return on Assets (ROA), the selected performance metric. The study adopts an ex post facto research design using panel data from 12 listed banks between 2015 and 2024. Descriptive statistics, correlation analysis, diagnostic tests, the Hausman test, and fixed effects panel regression were employed to analyze the data. Findings reveal that both credit and liquidity risks have significant negative effects on financial performance. A rise in NPLR and LDR was associated with declines in ROA, indicating that poor credit quality and aggressive lending impair profitability. The study contributes to risk management and financial performance literature by providing recent, context-specific evidence from Nigeria’s banking sector. It highlights the importance of sound credit evaluation and prudent liquidity management in achieving sustainable profitability. The findings have key implications for policymakers and regulators, suggesting the need for stricter enforcement of prudential guidelines and enhanced transparency in risk disclosures. Strengthening these frameworks will improve investor confidence and promote long-term financial stability in emerging markets.