CREDIT RISK MANAGEMENT PRACTICES AND LOAN PORTFOLIO PERFORMANCE OF SELECTED MICROFINANCE BANKS IN AKWA IBOM, NIGERIA

Rapidly increasing credit risk is becoming a concern for many individuals and lending institutions worldwide. This type of exposure leads to financial institutions’ instability and poor financial performance. Therefore, this study examines the effects of credit risk management on microfinance banks’ loan portfolio performance in Akwa Ibom State. This study used a descriptive design to examine credit risk and its relationship with loan portfolio performance in microfinance institutions. As of December 31, 2023, there were 15 licensed microfinance banks in Akwa Ibom State; however, only 5 were selected for the study because the CBN had approved their audited financial statements for 2019 to 2023. A well-structured questionnaire was used to collect data from 50 respondents among 117 employees across 5 banks, while data on NPL ratios were obtained from their approved financial statements. The results showed that credit scoring and rating have a significant positive relationship with the NPL ratio, with β = 1.203 and p = .001. Loan appraisal and approval systems have a marginally significant negative relationship with the NPL ratio, with β = -0.595 and p = .064. Loan monitoring and follow-up are significantly related to the NPL ratio, with β = 0.120 and p = .575. Collateral requirements showed no significant relationship with the NPL ratio, with β = -0.054 and p = 0.796. Credit reporting and review have a significant positive relationship with the NPL ratio, with β = 0.415 and p = .000. The study concludes that credit scoring and rating, loan monitoring and follow-up, and credit risk reporting and review are crucial in credit risk management for the selected microfinance banks in Akwa Ibom State. These factors are vital for effective microfinance bank risk management. Therefore, it was recommended that proper risk management be essential for achieving the long-term goals of the institutions and that management prioritize various risk strategies