Effect of Credit Appraisal on Profitability of Commercial Banks in Makurdi, Benue State, Nigeria

Abstract

This study examined the effect of credit appraisal on the profitability of selected commercial banks in Makurdi, Benue State, Nigeria. The study was anchored on Credit Risk Theory and Agency Theory to explain the link between appraisal quality and bank performance. The study adopted a descriptive survey research design. The population of 148 comprised credit officers, loan managers, and branch managers of five selected commercial banks operating in Makurdi: First Bank, Access Bank, Zenith Bank, UBA, and Fidelity Bank. A sample of 108 respondents was drawn using purposive sampling. Primary data were collected using a structured questionnaire designed using a 4-point Likert scale. Data were analyzed using descriptive statistics and multiple regression analysis with SPSS v28. Findings revealed that credit appraisal practices, proxied by client appraisal, collateral appraisal, loan monitoring, and credit risk assessment, have a significant positive effect on banks’ profitability measured by Return on Assets (ROA) and Return on Equity (ROE). Among the dimensions, client appraisal and loan monitoring were the strongest predictors of profitability. However, inadequate staff training, poor credit information sharing, and management interference were identified as major constraints limiting effective credit appraisal. The study revealed that sound credit appraisal significantly enhances profitability by reducing loan default and improving asset quality. It recommended that commercial banks in Makurdi should strengthen credit appraisal units, adopt credit scoring models, ensure strict adherence to appraisal policies, and enhance staff capacity through regular training. Regulatory agencies should also intensify supervision to enforce compliance with credit risk guidelines.