The Effect of Credit Risk on Sustainable Performance of Microfinance Banks in Nigeria

Abstract

This study investigates the impact of credit risk on the sustainable performance of Nigerian Microfinance Banks (MFBs). In North-Central Nigeria (including the FCT), a panel of MFBs from 2011 to 2021, comprising 451 bank-year observations, analyses credit risk through portfolio at risk (PAR), non-performing loans (NPLs), and loan-loss provisions (LLPs), with sustainability represented by return on assets (ROA). Estimation advances from pooled OLS and fixed- and random-effects models (directed by Hausman) to two-step system GMM to tackle unobserved heterogeneity, profit persistence, and endogeneity. Regulatory measures encompass the firm-specific capital adequacy ratio (CAR), organisational size and age, as well as macroeconomic factors such as GDP growth, inflation, and the monetary policy rate.