MACRO-ECONOMICS DETERMINANTS OF CREDIT RISK IN NIGERIAN BANKING SECTOR

Abstract

Credit risk represented by non-performing loans (NPLs) are used to indicate the beginning of financial crises because high and rising NPL levels are disastrous for any economy. In addition, without a thorough and precise understanding of their causes, policymakers and regulators will find it difficult to establish adequate credit policies and avoid the immediate threat of NPLs. This will lead to weaknesses in the banking industry and had most times lead to the collapse of some banks in Nigeria. In this regard, the objective of this study is to investigate the macro-economic determinants of credit risk in Nigeria. The study covered a period of 33 years from 1990 to 2022 using auto regressive distributive lag model as regressor which display both the short and long run relationship of the variables. The study found that GDP, EXR and INFR determinants had a negative relationship with NPLs, though only GDP is significant. Also, UNMP and INT determinants both had positive relationship but only UNMP is found significant to affect NPLs. The study recommended that policies be designed to boost GDP per capital and national income in order to reduce the effect of NPLs in Nigerian Banking industries. Also, government should work on reducing the rate of unemployment in Nigeria, result as shown that, as the unemployment rate increases the NPLs tends to increase.