Effect of Creative Accounting Practices on Credit Risk Management of Selected Deposit Money Banks Quoted in Nigeria

Abstract

Sound credit risk management is one of the criteria for deposit money banks to carry out efficient financial intermediation in developed, emerging and developing economies including Nigeria. However, the manipulation of bank financial data by fraud utilizing inventive accounting techniques led to the poor credit risk management and collapse of deposit money institutions in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on credit risk management of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of seven (10) failed banks and seven (7) surviving deposit money banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that for surviving banks, creative accounting had a significant influence on credit risk management (Adj.R2 = 0.182, Wald-Test= 4.44 :p < 0.05). Therefore, the study recommended that the management team of the banks should ensure that credit portfolio of the deposit money banks is prudently managed to grow year on year in the right mix and without contravening the statutory guidelines to avoid bad and doubtful loan classifications so as to achieve sound credit risk management.