An Evaluation of the Effect of Non-Performing Loans on the Financial Performance of Listed Deposit Money Banks: Evidence from Nigeria

Author(s)

Chukwuma C. Ugwu , Soje Benedict , Lilian N. Aikpitanyi ,

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Volume 9 - April 2020 (04)

Abstract

This study evaluated the effect of non-performing loans on the financial performance of deposit money banks in Nigeria for the period 2015-2019. The study employed correlation and ex-post facto research designs. Descriptive statistics and multiple regressions were used for data analysis. Secondary data were used, which were extracted from the Central Bank of Nigeria statistical bulletin, Nigeria Deposit Insurance Corporation and the Audited Annual Reports of the listed deposit money banks in Nigeria. The results of the study show that substandard loans and doubtful loans had a statistically negative significant influence on return on assets, while lost loans had an insignificant negative effect on performance (return on assets). These results show that a high level of non-performing loans would reduce the financial performance of banks in the long run in Nigeria. The study therefore recommended that credit reporting agencies and supervising authorities should be strengthened in order to reduce the high level of non-performing loans in deposit money banks in Nigeria as this will go a long way in improving their financial performance. The implication of this finding is that if the high level of non-performing loans in deposit money banks is not checked, it will threaten the existence of some of these banks in the future. 

Keywords

Non-performing loans, Deposit Money Banks, Financial Performance

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