CREDIT RISK AND THE PERFORMANCE DILEMMA IN NIGERIAN DEPOSIT MONEY BANKS: A CONCEPTUAL INQUIRY INTO MARKET VALUATION AND REGULATORY VOLATILITY AMIDST POLICY BURDEN OF MONETARY TIGHTENING
Abdulgaffar Muhammad, Sheikh Ahmed Abdullah, Ibrahim Mohammed and Ibrahim Bashir Bugaje
Volume 5 Issue 2
Abstract
his study conceptually explores the complex relationship between credit risk and performance metrics in Nigerian Deposit Money Banks (DMBs), emphasizing the destabilizing role of the Monetary Policy Rate (MPR) in valuation and risk perception. While banks report strong capital adequacy and liquidity ratios, their persistently low market valuations evidenced by suppressed P/E ratios indicate a disconnection between accounting performance and investor confidence. The study critiques traditional performance measures like ROA and ROE for their backward-looking limitations, arguing that these fail to capture forward-looking risks, market sentiment, and systemic fragility. Through critical analysis, the paper reveals that volatile monetary tightening, rising impairment losses, and poor risk disclosures have created a performance illusion where profit metrics mask deeper institutional weaknesses. Drawing on Nigerian case examples such as the collapses of Skye Bank and Diamond Bank, the paper frames regulatory inconsistency, political interference, and inadequate market signaling as key contributors to this mismatch. Ultimately, it proposes a reconceptualization of performance that integrates market valuation dynamics, regulatory credibility, and credit quality exposure, especially within Nigeria’s volatile macro-financial environment. Keywords: Credit Risk, Market Valuation, Deposit Money Banks, Monetary Policy Rate, Performance Metrics, Nigeria
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