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Abstract

Nigerian banks have continued to invest huge sums of scarce financial


resources on risk management modeling, with a view to maximizing returns
and minimizing banks risk exposure through provision for loan losses.
However, empirical evidence on the magnitude of the relationships between
credit risk and banks profitability in Nigeria is rather scarce. A few studies
that have examined the links failed to consider the role of capital adeuacy
in accordance with !assel "" accord in a unified framework. #sing a time
series and cross sectional data from $%%&'$%%( obtained from selected
banks annual reports and accounts in Nigeria, this study examined the
)elationship !etween *apital Adeuacy and the +oans !ehaviour of ,eposit
-oney !anks in Nigeria. .his is with a view to providing further empirical
evidence on how credit risk management strategies and capital reuirement
variables affect banks profitability in Nigeria. /anel data model was used to
estimate the relationship that exists among loan loss provisions 0++/1, loans
and advances 0+A1, non'performing loans 0N/+1, capital adeuacy 0*A1
and return on asset 0)2A1. )esults showed that sound credit risk
management and capital adeuacy impacted positively on banks financial
performance with the exception of loans and advances which was found to
have a negative impact on banks profitability in the period under study.
!ased on the findings, it is therefore, recommended that Nigerian banks
institute appropriate credit risk management strategies by conducting
rigorous credit appraisal before loan disbursement and draw down. "t is
also recommended that adeuate attention be paid to enhance .ier'2ne
capital of Nigerian
banks.