Effect of Non-Performing Loans on the Performance of Deposit Money Banks in Nigeria
IGEMOHIA, Mohammed
Abstract
This study investigated the effect of non-performing loans on financial performance of listed deposit money banks in Nigeria. Secondary data was obtained from 2012-2023 and the study population comprised all listed deposit money banks, out of which 14 were sampled. Panel data obtained were analyzed using descriptive, regression diagnostic and inferential statistical tools. The fixed random effect panel regression result revealed that non-performing loans (t- value = -3.02; p-value = 0.003 < 0.05%) significantly influence financial performance of the listed deposit money banks in Nigeria. The study recommends that management of deposit money banks should be more equipped with the right skills and experience in ensuring safe and smooth use of provision of loans losses. The study contributes to knowledge by showing that non-performing loan significantly affects performance of deposit money banks in Nigeria. In addition, future studies may consider extending data till 2024 as well as investigating how investments and cash flow decisions can mediate in the relationship between credit risk management and financial performance and value of deposit money banks in Nigeria.
Keywords
Credit risk management; Financial performance; Banks; Non-performing loans
References
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International Journal of Banking and Finance, 5(1), 135-152.
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management: bridging theory and practice. International Journal of Applied
Management Science, 4(1), 1-17.
Yitayaw, M.K (2021). Determinants of profitability and financial sustainability of saving and
credit cooperatives in eastern Ethiopia. International Journal of Rural Management,
9(1), 1-18
banks’ performance in Nigeria. International Journal of Management and
Sustainability, 3(5), 295-306.
Adebisi, O. (2014). Risk management and financial performance of banks in Nigeria. IOSR
Journal of Business and Management, 14(6), 1-13
Adegbie, F. F., & Dada, O. T. (2018). Risk assets management, liquidity management and
sustainable performance in Nigeria deposit money banks. International Journal of
Accounting Research, 6(2), 1 – 10.
Adegbie, F. F., & Otitolaiye, E. D. (2020). Credit risk and financial performance: an empirical
study of deposit money banks in Nigeria. European Journal of Accounting, Auditing
and Finance Research, 8(2), 38-58.
Ahmad, N.H. & Ariff, M. (2016). Multi-country study of bank credit risk determinants.
International Journal of Banking and Finance, 5(1), 135-152.
Altanashat, M., Dubai, M., & Alhety, S. (2019). The impact of enterprise risk management on
institutional performance in Jordanian public shareholding companies. Journal of
Business and Retail Management Research, 13(3), 256-269.
Atoi, N. V. (2018). Non-performing loan and its effects on banking stability: Evidence from
national and international Licensed banks in Nigeria. CBN Journal of Applied Statistics,
9(2), 43-74.
Egberi, A.K. (2020). Risk management and corporate sustainability in Nigeria International
Journal for Research and Sustainable Development, 7(1), 222-229
Ekanayake, E.M.N.N. & Azeez A.A. (2015). Determinants of non- performing loans in licensed
commercial banks: evidence from Sri Lanka. Asian Economic and Financial Review,
5(6) 868-882.
Ekinci, R., & Poyraz, G. (2019). The effect of credit risk on financial performance of deposit
banks in Turkey. Procedia Computer Science, 158(1), 979–987.
Gieseche, K. (2024). Credit risk modelling and valuation: An introduction. Credit Risk: Models
and Management, 2, 1-40.
Greenidge, K., & Grosvenor, T. (2010). Forecasting non-performing loans in Barbados.
Journal of Business, Finance and Economics in Emerging Economies, 5(1), 80-107.
Hosna, A., Manzura, B. & Juanjuan, S. (2019). Credit risk management and profitability in
commercial Banks in Sweden. (Master’s thesis), University of Gothenburg.
Kargi, H.S. (2021). Credit risk and the performance of Nigerian banks. Zaria: Ahmadu Bello
University Press.
Kithinji, A.M. (2010). Credit risk management and profitability of commercial banks in Kenya.
School of Business, University of Nairobi.
Kolapo, T.F, Ayeni, R. & Oke, M.O. (2012). Credit risk management and commercial banks
performance in Nigeria: A panel model approach. Australian Journal of Business
Management Research 2(2), 31-38.
Odiri, V.I.O., Aruoren, E.E., & Okoro, G.E. (2021). Does corporate risk management increase
the value of a firm? Evidence from quoted Nigerian oil and gas companies. Test
Engineering and Management Journal, 84(1), 210-225
Odubuasi, A.C., Ofor, N.T. & Ilechukwu, F.U. (2022). Enterprise risk management, risk
committee, and earnings capacity of African banks: A comparative approach. Modern
Economy, 13(1), 51-68
Ososuakpor, J.O. & Okoro, E.G. (2023). Enterprise risk management and firm value: Evidence
from selected commercial banks in sub-Saharan Africa. International Journal of
Applied Economics, Finance and Accounting, 16(2), 199-207
Siyanbola, T.T. & Adebayo, K.K. (2021). Credit risk management and financial sustainability
of listed deposit money banks in Nigeria. Journal of Research in Business and
Management, 9(6), 64-7
Talata, N. (2015). The effect of non-performing loans on the financial performance of selected
rural banks in the Western and Ashanti regions of Ghana (MBA thesis). Ghana: Kwame
Nkrumah University of Science and Technology School of Business, BA. Publishing
Studies.
Retrieved
from:http://ir.knust.edu.gh/bitstream/123456789/8526/1/TALATA%20NSOBILLA.pd
f on 5th July, 2024.)
Tracey, J., & Leon, H. (2011). The effect of non-performing loans on loan growth: An
econometric case study of Jamaica and Trinidad and Tobago. Paper presented at the
Bank of Jamaica Applied Research Conference in Jamaica. (Retrieved from:
http://www.boj.org.jm/researchconf/papers
/TraceyThe%20Effect%20of%20NPLs
%20on%20Loan%20%20Case%20Study%20of%20Jamaica %20%20Trinidad%20an
d%20Tobago.pdf on 5th July, 2024
Udeh, S.N. (2015). Impact of monetary policy instruments on profitability of commercial banks
in Nigeria: Zenith Banks Plc. Research journal of Finance & Accounting, 6(10), 1-16
Viskari, S., Ruokola, A., & Pirttil, M. (2011). Advanced model for working capital
management: bridging theory and practice. International Journal of Applied
Management Science, 4(1), 1-17.
Yitayaw, M.K (2021). Determinants of profitability and financial sustainability of saving and
credit cooperatives in eastern Ethiopia. International Journal of Rural Management,
9(1), 1-18
