Acta Universitatis Danubius. Œconomica, Vol 8, No 1 (2012)

Abstract

This study highlighted the roles and strategic importance of credit risk management in the banking industry vis-à-vis sustenance of shareholders’ wealth. The authors examined whether a reduction in the non-performing credits in banks’ loan portfolio will reveal a possible correlation between effective credit risk management administration and shareholder’s wealth. In testing this, secondary data were sourced from the randomly selected five banks financials (between the period of 2006 to 2010) with the use of relevant ratios. Two hypotheses were tested using multiple regression and correlation method. The result of hypothesis one showed that the calculated r – statistics (r =.429, p<0.05) was greater than the tabulated r – statistics (r =.381) showing that the test was significant at 0.05 alpha level. The result of hypothesis two also showed that the calculated r-statistics (r=.403, p<0.05) was greater than tabulated r-statistics (r=.381) at 0.05 level of significance which implied that, there was a significant relationship between credit risk management and shareholders’ wealth. Based on these results, the authors recommended that, the banking sector should strive to employ objective standards of professionalism, experience and high integrity in placement of managers who are responsible for managing the credit portfolios; for this will largely influence the quality of risk assets management and debt recovery which will in-turn engender confidence in the banking industry and ensure the sustenance of shareholders’ wealth and investment.