The Impact of Bank Credit Risk on the Performance of Small and Medium Enterprises in Nigeria: A Time-Series Analysis (1981–2025)
Keywords:
Credit Risk, SME Performance, Non-Performing Loans (NPLs), Risk PremiumAbstract
This study analyses the impact of bank credit risk on the performance of Small and Medium-Sized Enterprises (SMEs) in Nigeria from 1981 to 2025. The research used Ordinary Least Squares (OLS) regression to examine the relationship between SME performance and key variables: the bank capital-to-assets ratio, Non-Performing Loans (NPLs), the Risk Premium Lending Rate, and global equity indices. Descriptive statistics and diagnostic tests were conducted to ascertain data reliability and assess its distributional properties. The results indicate that non-performing loans significantly and negatively affect the performance of small and medium-sized firms, implying that banking sector instability and rising credit risk impede business growth. The risk premium lending rate has a positive and large impact, suggesting that fluctuations in interest rates reflect broader macroeconomic conditions instead of directly hindering SME development. The ratio of bank capital to assets and global equity indices do not have significant direct effects on SME performance inside the model. The regression's explanatory power is strong, demonstrating that SME performance is considerably affected by the parameters employed in the study. The results emphasise the necessity of financial sector stability and effective credit risk management for sustained SME development. The paper recommends improving banking sector regulation, optimising financing avenues for SMEs, and developing targeted fiscal measures to promote business growth. This research clarifies the impact of financial dynamics on SME performance, emphasising the effects of credit risk, interest rates, and fiscal interventions on small and medium enterprises in emerging economies. Addressing these issues is crucial for enhancing SME resilience and promoting holistic economic development.
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