Credit Management Practices and Loan Default in Deposit Money Banks (DMBs) in Osun State, Nigeria

Abstract

Background: Loan default has been shown in existing literature to have a negative impact on banks as it reduces the performance of banks and may lead to total collapse of these institutions. The high rate of default associated with loans in Nigerian banks is indicative of existing poor credit management practices by the banks. Aim: As such, this study examined the effect of credit management practices on loan default in deposit money banks in Osun State. Methods: The study employed the survey research design, using a well-structured questionnaire to collect responses of one hundred and twenty (120) officers and managers from two hundred and fifty two (252) officers and managers of sixty (60) bank branches in Osun State. Using descriptive and multiple linear regressions, the collated data was presented using tables, while the research hypothesis was tested at the 5% level of significance. Findings: The study found that credit management has no significant effect on loan default, with both credit appraisal and credit monitoring exhibiting negative but non-significant effects on loan default, and credit collection policy exhibiting positive and significant effect on loan. Conclusion: The study concluded that credit management practices have no significant effect on loan default. In other words, loan default experienced in the banks were not influenced by the loan management practices put in place. While the processes were in existence in the banks under investigation, they have not been able to affect the incidences of loan default.