CEO Characteristics, Audit Committee Attributes and Credit Risk Management in Nigerian Deposit Money Banks

Abstract

Credit risk remains the most pervasive threat to the solvency of Deposit Money Banks (DMBs) in Nigeria, as reflected in recurring episodes of non-performing loans, regulatory forbearance, and, in extreme cases, bank distress and liquidation. While the Central Bank of Nigeria (CBN) has strengthened prudential guidelines and corporate governance codes since the 2009 banking crisis, credit quality indicators in the industry continue to fluctuate, suggesting that governance mechanisms alone do not automatically translate into sound credit risk outcomes. This study empirically examines how two governance-related constructs, Chief Executive Officer (CEO) characteristics and audit committee attributes, affect credit risk management in Nigerian DMBs. Drawing on Upper Echelons Theory, Agency Theory, and Stakeholder Theory, the study utilises panel data from twelve (12) listed Deposit Money Banks in Nigeria over the period 2014-2023. Credit risk management is proxied by the non-performing loan ratio, while CEO characteristics are measured by age, tenure, gender, educational/financial background, and duality, and audit committee attributes are measured by independence, size, financial expertise, and meeting frequency. Using panel regression analysis (Fixed Effects and Random Effects models, with the Hausman test for model selection), the results reveal that CEO tenure (β = 0.034, p < 0.05) and CEO duality (β = 0.089, p < 0.01) have significant positive effects on non-performing loans, while CEO financial expertise (β = -0.056, p < 0.01) and audit committee financial expertise (β = -0.042, p < 0.05) significantly reduce non-performing loans. Audit committee independence (β = -0.031, p < 0.10) and meeting frequency (β = -0.018, p < 0.05) also significantly reduce non-performing loans. The interaction between CEO risk propensity and audit committee effectiveness is statistically significant (β = -0.067, p < 0.01), confirming that audit committee vigilance moderates the relationship between CEO characteristics and credit risk management. The study concludes that the interaction between upper echelons attributes and audit committee vigilance, rather than either mechanism in isolation, offers a more complete explanation of credit risk outcomes in Nigerian banks. It recommends that regulators and bank board’s pay closer attention to CEO profiling and audit committee composition as part of credit risk governance.