The Impact of Credit Risk Management on the Financial Performance of First Bank Nigeria Plc in Gombe State
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Background of the Study
Credit risk management plays a vital role in the financial performance of banks, particularly in a challenging economic environment like Nigeria. The banking sector in Nigeria, including First Bank Nigeria Plc, has faced various financial challenges related to non-performing loans (NPLs), high levels of bad debts, and fluctuating macroeconomic conditions (Chukwu, 2023). Effective credit risk management strategies can mitigate these risks, leading to improved financial performance, enhanced profitability, and long-term sustainability (Bello, 2024). First Bank Nigeria Plc, as one of the leading commercial banks in Nigeria, has adopted several credit risk management techniques to address these challenges and maintain a strong financial position.
Gombe State, where First Bank operates, presents unique opportunities and challenges for the banking sector. The state's economic conditions, largely influenced by agriculture and local businesses, require banks to effectively manage credit risk to sustain their operations and profitability. However, despite the importance of credit risk management, limited research has been conducted on its specific impact on the financial performance of First Bank Nigeria Plc in Gombe State. This study seeks to fill this gap by examining the influence of credit risk management strategies on the bank's financial performance in this region.
Statement of the Problem
First Bank Nigeria Plc, like many banks in Nigeria, faces challenges related to credit risk, particularly in areas with high levels of informal economic activities, such as Gombe State. The bank has experienced an increase in loan defaults and NPLs, which have negatively affected its profitability and financial performance (Onuoha, 2024). There is a need for a comprehensive analysis of how effective credit risk management practices influence the financial outcomes of First Bank in Gombe State. Understanding this relationship is crucial for the bank’s continued success and for the wider banking sector in Nigeria, where credit risk is a significant concern.
Objectives of the Study
1. To evaluate the impact of credit risk management on the financial performance of First Bank Nigeria Plc in Gombe State.
2. To identify the credit risk management strategies employed by First Bank Nigeria Plc to mitigate financial losses.
3. To assess the relationship between non-performing loans and the profitability of First Bank Nigeria Plc in Gombe State.
Research Questions
1. How does credit risk management impact the financial performance of First Bank Nigeria Plc in Gombe State?
2. What credit risk management strategies are employed by First Bank Nigeria Plc to mitigate losses?
3. How do non-performing loans affect the profitability of First Bank Nigeria Plc in Gombe State?
Research Hypotheses
1. Effective credit risk management positively impacts the financial performance of First Bank Nigeria Plc in Gombe State.
2. Credit risk management strategies reduce the level of non-performing loans at First Bank Nigeria Plc in Gombe State.
3. Non-performing loans have a significant negative effect on the profitability of First Bank Nigeria Plc in Gombe State.
Scope and Limitations of the Study
This study focuses on First Bank Nigeria Plc in Gombe State, analyzing the impact of credit risk management on its financial performance. The research will specifically look at loan portfolios, non-performing loans, and profitability metrics over the past five years. Limitations include the potential difficulty in accessing detailed internal data due to the confidentiality of the bank’s financial records. Additionally, the bank’s operations in other regions may influence the results, requiring careful interpretation of findings.
Definitions of Terms
• Credit Risk Management: The process of identifying, assessing, and managing risks associated with lending and credit-related activities.
• Financial Performance: A measure of a company’s profitability, revenue growth, and financial health.
• Non-Performing Loans (NPLs): Loans on which the borrower is not making interest payments or repaying any principal.
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