Analysis of the Impact of Economic Recession on Banking Sector Credit Quality in Nigeria

Economic recessions adversely affect banking sector credit quality, and Nigeria's experiences of recession in 2016 and 2020 offer important case studies for professional analysis of the banking sector's credit resilience. This study analyses the impact of the 2016 and 2020 economic recessions on the credit quality of Nigerian deposit money banks. Secondary data were obtained from the Central Bank of Nigeria banking supervision annual reports, the Nigeria Deposit Insurance Corporation annual reports, and individual bank financial statements for the period 2014 to 2022. Credit quality was measured by non-performing loan ratios, loan loss provision coverage, credit impairment charges, and sectoral credit concentration during recession periods. Interrupted time series analysis and comparative case study methodology were employed to isolate the recession-specific effect on credit quality from the broader trend. Results showed that the non-performing loan ratio increased from 5.8% in 2015 to 14.8% in 2017, the peak of the 2016 recession impact, before declining to 6.4% by 2019. The 2020 COVID-19-induced recession produced a smaller spike (peak non-performing loan ratio: 9.1% in 2021) due to the Central Bank of Nigeria's forbearance measures. Oil and gas sector loans were the most vulnerable in 2016, while retail and small business loans deteriorated most in 2020. The study concludes that recession resilience of Nigerian bank credit portfolios has improved but remains sensitive to oil sector shocks, and recommends sector-diversified lending guidelines.

Keywords: economic recession, credit quality, non-performing loans, Nigerian banks, loan loss provisions