Impact of Credit Risk Management, Capital Adequacy and Financial Performance of Commercial Banks in Nigeria.

The Nigerian banking sector plays a critical role in financial intermediation and economic development. However, persistent challenges relating to credit risk exposure and capital adequacy have raised concerns about the sustainability of bank profitability, particularly in the post-pandemic period. This study examines the impact of credit risk management and capital adequacy on the financial performance of commercial banks in Nigeria. Specifically, the study investigates the extent to which credit risk management and capital adequacy influence the profitability of selected commercial banks between 2020 and 2024.
The study is anchored on the Risk–Return Trade-off Theory and the Capital Buffer Theory, which explain the relationship between risk-taking, capital strength, and financial performance. An ex post facto research design was adopted, utilising secondary data obtained from the audited annual financial statements of Access Bank Plc, Jaiz Bank Plc, and Stanbic IBTC Bank Limited. The banks were purposively selected because of the availability and completeness of their financial reports. Data were analysed using descriptive statistics, correlation analysis, and Ordinary Least Squares (OLS) regression. Return on Assets (ROA) was used as a proxy for financial performance, while Loans-to-Assets Ratio (LTA), Capital Adequacy Ratio (CAR), and Deposits-to-Assets Ratio (DTA) served as explanatory variables.
The findings revealed that credit risk management, measured by the Loans-to-Assets Ratio, exerted a negative and statistically significant effect on financial performance, indicating that excessive credit exposure reduces profitability. Capital adequacy exhibited a positive and statistically significant relationship with profitability, suggesting that well-capitalised banks are better positioned to achieve sustainable financial performance. Although the Deposits-to-Assets Ratio showed a positive relationship with profitability, its effect was statistically insignificant. The results further indicate that effective asset management and adequate capitalisation contribute substantially to bank performance.
The study concludes that sustainable financial performance among Nigerian commercial banks depends on prudent credit risk management, strong capital buffers, and effective regulatory oversight. The study recommends that commercial banks strengthen risk-based lending practices, maintain capital levels above regulatory minimum requirements, and diversify their loan portfolios to enhance profitability and financial stability in the long run

Basel III, capital adequacy, credit risk management, Nigerian commercial banks, financial performance, profitability

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