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

Omobolade Stephen Ogundele () and Lethiwe Nzama
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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

JRFM, 2025, vol. 18, issue 4, 1-15

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.

Keywords: credit risk; credit risk disclosure; financial performance; generalized method of moments; liquidity risk; liquidity risk disclosure (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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