The criticality of credit recovery m banking system stability: A GM:M I estimation

Abstract

This study examines the criticality of credit recovery on banking system stability in Nigeria using data from 2007 to 2020. T he system generalized method of moments (SYSGMM) was used to analyze the data and determine the presence of cointegrating relationships among the Yariables. The fmdings revealed that credit recovery positively and significantly influences banl;ing system stability. It was discoYered that the recovery rate positively and significantly impacts the banking system stability in the short and long terms. In contrast, recovery expense only negatively and significantly affects the banking system in the short term. T his implies that credit recovery is critical in business endeavors and operations for banks. Hence, the longer the delay in recoYering bad debts, the more banks lose the opportunity to earn income fi·om substiU1te investments, and collateral may lose value. Therefore, this study recommends that banks' management agg-ressively pursue the repayment of bad loans and maintain favorable and minimal recoYery expenses, particularly with external debt recovery agents, to ensure that the cost of recovery is not higher than the amount recovered.