EFFECT OF CREDIT RISK MANAGEMENT ON FINANCIAL STABILITY OF QOUTED DEPOSIT MONEY BANKS (DMBs) IN NIGERIA

Abstract

Financial stability remains a critical concern for banking systems, particularly in emerging economies where macroeconomic volatility and sectoral credit concentration increase default risk. This study examined the effect of credit risk management on the financial stability of listed deposit money banks over the study period using panel data analysis. Secondary data were obtained from published annual reports of selected banks, covering 130 firm-year observations. The findings revealed that non-performing loans have a negative and statistically significant effect on financial stability, indicating that deterioration in asset quality weakens bank resilience. Capital adequacy ratio was found to have a positive and significant effect on financial stability, suggesting that well-capitalized banks are better positioned to absorb shocks and maintain operational continuity. However, loan loss provisions showed a negative but statistically insignificant relationship with financial stability. The study concludes that effective credit risk management, particularly in controlling non-performing loans and maintaining adequate capital buffers, is essential for sustaining financial stability. It recommends strengthened credit monitoring, enhanced risk assessment frameworks, and continuous regulatory supervision to ensure resilience in the banking sector.