Analysing the Nexus between Financial Inclusion and Credit Risk of Deposit Money Banks in Nigeria

Abstract

This paper provided an empirical analysis of the relationship between financial inclusion and credit risk of all the commercial banks in Nigeria between 2007- 2022. We represented financial inclusion with bank availability, bank accessibility and bank usage, and credit risk with non-performing loans. Our study also adopted three control variables: real GDP, inflation and unemployment rate while using autoregressive distributed lag model (ARDL) to conduct the investigation. To guard against spurious results and ensure credible and robust outcomes the authors engaged pre and post analytical checks such as stationarity, autocorrelation, heteroscedasticity, normality, Wald and CUSUM tests. We discovered that it was only formal account ownership (ACC) and unemployment rate that exerted positive and significant effect on the non-performing loans. Therefore we conclude that finical inclusion has not benefited the Nigeria banking industry in aspect of reduction of non-performing loans. The study recommends that much as more efforts should be directed towards enhanced digital financial literacy, upgrade of digital infrastructure, deployment of more automated teller machines, etc., the regulatory body and bank management should adopt strict and proactive supervisory measures to contain the undesirable fallouts of the initiative.