NON PERFORMING LOAN AND FINANCIAL PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

ABSTRACT

This study focuses on empirically estimating the relationship between non-performing loans and the performance of Deposit Money Banks (DMBs) in Nigeria. Twelve (12) quoted deposit money banks were used in this study. Five variables such as; return on asset, non-performing loan, capital adequacy, Loans and Advances, and Loan loss provision were used for the estimation. The data used ranges from 2011 to 2020 across 12 deposit money banks in Nigeria. And the number of observation is (12 deposit money banks times 10 years) 120. This study used the panel regression technique. This implies that the 120 observations are pooled together before the regression is run, thus neglecting the time series nature and cross sectional nature of the data. Results from the empirical analysis showed that: non-performing loan has a negative significant impact on the Deposit Money Banks (DMBs) performance in Nigeria; capital adequacy does not have any impact on Deposit Money Banks (DMBs) performance; loans and advances does not have any impact on the Deposit Money Banks (DMBs) performance; and loan loss provision has a positive significant impact on the Deposit Money Banks (DMBs) performance of in Nigeria. Based on this findings, it was recommended that: banks should invest in advanced credit risk management systems; banks should strengthen their loan recovery departments; banks should periodically review their provisioning policies; to adapt to changing economic landscapes, continuous training programs for bank personnel in the areas of credit assessment, loan disbursement, and risk management are essential; and banks should explore diversifying their revenue streams, such as fees from advisory services, investment banking, or asset management, to buffer against downturns in the lending segment.