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Risk Management Practices and Financial Performance: Analysing Credit and Liquidity Risk Management and Disclosures by Nigerian Banks

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  • Omobolade Stephen Ogundele

    (Department of Commercial Accounting, College of Business and Economics, University of Johannesburg, Johannesburg 2092, South Africa)

  • Lethiwe Nzama

    (Department of Commercial Accounting, College of Business and Economics, University of Johannesburg, Johannesburg 2092, South Africa)

Abstract

Nigerian banks encounter persistent difficulties in efficiently managing and disclosing credit and liquidity risks, considerably affecting their financial performance and shareholders’ confidence. This study, therefore, examined the effect of risk-management practices and disclosures on the financial performance of Nigerian commercial banks. The population of the study comprised 13 Nigerian commercial banks, of which 12 were purposively chosen, subject to data availability. The data explored in this study originate from World Development Indicators and the annual reports and accounts of the selected Nigerian commercial banks from 2012 to 2023. The data analysis technique used was panel regression analysis, which was further extended to the generalized method of moments in a bid to account for potential endogeneity. The study made use of EViews 12 software to analyse the data. The results reveal that liquidity risk disclosure and firm size had significant and positive effects on financial performance, while credit risk disclosure, credit risk, firm age, and leverage had significant and negative effects. This study concludes that credit risks significantly undermine commercial banks’ financial performance, as an upsurge in non-performing loans results in reduced financial performance. Conversely, effective liquidity risk disclosure characterized by transparent reporting on liquidity position was found to enhance financial performance. This study, therefore, recommends, among others, that banks should strengthen their credit risk assessment framework and enhance transparent risk reporting to improve performance and financial stability.

Suggested Citation

  • Omobolade Stephen Ogundele & Lethiwe Nzama, 2025. "Risk Management Practices and Financial Performance: Analysing Credit and Liquidity Risk Management and Disclosures by Nigerian Banks," JRFM, MDPI, vol. 18(4), pages 1-15, April.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:4:p:198-:d:1628276
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    References listed on IDEAS

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    2. E. Chuke Nwude & Chinedu Okeke, 2018. "Impact of Credit Risk Management on the Performance of Selected Nigerian Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 287-297.
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    5. Noor Hashim Mohammed Al-Husainy & Hamid Mohsin Jadah, 2021. "The Effect of Liquidity Risk and Credit Risk on the Bank Performance: Empirical Evidence from Iraq," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(1), pages 58-67, june.
    6. Enzo Scannella & Salvatore Polizzi, 2021. "How to measure bank credit risk disclosure? Testing a new methodological approach based on the content analysis framework," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(1), pages 73-95, March.
    7. Ha Nguyen, 2023. "Credit Risk and Financial Performance of Commercial Banks: Evidence from Vietnam," Papers 2304.08217, arXiv.org, revised Apr 2023.
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