ASSESSING CREDIT RISK AND LENDING PATTERN IN THE NIGERIA BANKING SECTOR

Abstract

This article collected secondary data in yearly time series from 2007 to 2020 to analyze nonperforming loans, liquid reserves to assets ratio, capital to assets ratio, domestic credit, and exchange rate and their effects on Nigerian lending rate. The constructed and analyzed model was estimated via the least square technique to achieve its goals. Findings in this research reveal a beneficiary influence of nonperforming loans, capital to asset ratio, and exchange rate on bank lending rate. While liquid reserves to assets ratio, and domestic credit exhibits inverse relation with lending rate. Hence, the relationship between nonperforming loans, liquid reserves to assets ratio, and domestic credit are statistically significant with lending rate. Capital to asset ratio, and exchange rate exhibits an insignificant relation with lending rate. The research suggests consequently that both private individuals and business entities should exercise caution when taking out loans, ensure that the total amount borrowed is sufficient to cover all of their needs. Banks need to use caution when making loans; the prime motive for lending money should not merely be to make a profit. Credit risk is considered substantial; banks need to lower nonperforming loan portfolio and by this, both banks and their clients will experience great benefits.