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

ABSTRACT

The study examined the effect of non-performing loan on deposit money banks performance in the Nigeria for a period of 10 years (2011 to 2020) for 11 listed deposit money banks. The panel least square econometric analysis was employed to analyze Nigerian specific data. The empirical results indicate that non-performing loans (NPLR), liquidity ratio (LRR) and operating expenses (OPEX) have significant negative relationship with deposit money banks performance; while loan loss provisions (LLPR), has significant positive relationship with performance. However, interest rate (IRR) failed the 5 percent significance level, as it does not have significant impact on deposit money banks financial performance in Nigeria. The study therefore recommends that, management should adopt an effective flexible credit policy that would enable borrowers to restructure or convert loan terms which should be adopted in the banking sector. This policy could help reducing the high level of nonperforming loan, and in turn enhance the overall financial performance of deposit money banks in Nigeria. Also, the weak nature of interest rate in relation to banks performance is a wake-up call on banks’ management to always adopt and implement an appropriate interest rate that will be a win win situation for both lenders (banks) and borrowers. By so doing more loan application will come in, more profit would be made by the banks.