Strategic Credit Risk Management and Loan Portfolio Quality in Nigerian Commercial Banks: A Professional Assessment

Credit risk management strategy is a determinant of loan portfolio quality and institutional resilience in Nigerian commercial banks, yet its practical application across bank categories remains unevenly documented. This study conducts a professional assessment of strategic credit risk management practices and their relationship with loan portfolio quality in Nigerian commercial banks, with evidence from selected banks operating in the North Central geopolitical zone. A mixed-methods research design was employed, combining structured interviews with 40 senior credit risk officers from eight commercial banks in Abuja and Ilorin with documentary analysis of credit policy manuals and loan portfolio performance reports for the period 2019 to 2023. Loan portfolio quality was measured by non-performing loan ratio, loan loss provision adequacy, and credit concentration indices. Thematic analysis was applied to qualitative data, while correlation analysis was employed for quantitative indicators. Results revealed that banks with formally documented credit risk appetite frameworks maintained significantly lower non-performing loan ratios (mean: 4.2%) compared to those without such frameworks (mean: 8.7%). Portfolio concentration in single sectors exceeding 30% was associated with elevated default risk. Stress testing was practised by only 60% of sampled banks. The study concludes that strategic credit risk management, including formal risk appetite setting and regular stress testing, is strongly associated with superior loan portfolio quality in Nigerian commercial banks. Recommendations include mandatory sector-level portfolio stress testing for all Category 1 commercial banks.

Keywords: credit risk management, loan portfolio quality, non-performing loans, stress testing, commercial banks