Credit Risk Management and Loan Portfolio Performance in Microfinance Banks in Anambra State

The sustainability of microfinance institutions in Nigeria is increasingly threatened by rising non-performing loan ratios, which underscore the inadequacy of existing credit risk management frameworks and their implementation in day-to-day lending operations. This study assessed the relationship between credit risk management practices and loan portfolio performance in microfinance banks operating in Anambra State. The study was anchored on the credit risk theory, which emphasizes the role of borrower assessment, collateral evaluation, and portfolio diversification in minimizing credit losses. A survey and documentary research design was adopted, with a population of 198 credit officers, risk managers, and loan administrators drawn from 12 registered microfinance banks. A sample of 132 respondents was selected using proportionate stratified sampling. Primary data were collected via questionnaire, complemented by secondary data from loan performance records. Data were analyzed using Pearson correlation and panel regression. Results showed that credit scoring, borrower due diligence, and portfolio concentration management significantly and positively predicted loan portfolio performance as measured by non-performing loan ratios. The study concluded that rigorous credit risk management frameworks reduce the incidence of non-performing loans and strengthen institutional sustainability. It was recommended that the Central Bank of Nigeria should enforce minimum credit assessment standards for microfinance banks and mandate the use of technology-enabled credit evaluation tools.

Keywords: Credit risk management, loan portfolio performance, microfinance banks, non-performing loans, credit scoring