Abstract
The study examines the relationship between bank specific and macroeconomic determinant of non-performing loans in Nigerian deposit money banks over the period of 5 years (2010 to 2014). A sample of 10 banks out of 15 quoted by the Nigerian Stock Exchange (NSE) was considered on a cross sectional basis. The study adopted non-survey research design and secondary data was used, generated from the bank’s annual reports and accounts, Central Bank of Nigeria (CBN) and Nigerian Stock Exchange fact book respectively. The data were analysed using descriptive statistics, correlation coefficient and multiple regressions. As thus, Stata (version 12) was used as a statistical tool for data analysis. The findings reveal positive significant relationship between Non-Performing loans and Loan to deposit and Bank size; whereas relationship between capital adequacy ratio and Inflation reveals a positive insignificant relationship; whereas Return on asset had negative insignificant relationship with the rate of non-performing loans. Based on the findings, it is recommended that CBN for policy purposes should frequently assess the lending habit of deposit money banks in Nigeria. Finally, strengthening securities market will have a positive impact on the general improvement of the banking institutes’ thereby increasing the effectiveness of the financial sector.
Highlights
Banking business focuses largely on the acceptance of money in the form of deposits from members of the public and turning the deposits accessible to borrowers in the form of loans for investments, consumptions, and other purposes best known to the borrower
On the overall bank size has the highest standard deviation with about 0.3967162 followed by capital adequacy ratio with 0.338092 while average lending rate has the lowest standard deviation which account for only 0.0129403. These indicate that the average lending rate and inflation account for 24% and 11% of the non-performing loans of deposit money banks in Nigeria
In assessing the model of the regression equation, the results shows that, the relationship between non-performing loans (NPLs) and Return on Assets (ROA) is negative while capital adequacy ratio (CAR) and INFL is positive, but all insignificant, which can be justified with “t” values of – 1.32, 1.44 and 1.06 and P>|t| 0.194, 0.158, and 0.293 respectively with the following coefficients result -1.464943, 0.3161088 and 2.986235, which means deterioration of profitability ratio measured by ROA leads to riskier activities of banks and raise the level of NPLs
Summary
Banking business focuses largely on the acceptance of money in the form of deposits from members of the public (i.e. bank customers) and turning the deposits accessible to borrowers in the form of loans for investments, consumptions, and other purposes best known to the borrower. The loans may be in the forms of overdraft, loan and advances, business funding arrangements and local purchasing order financing, amid others. In consequence, lending is one the fundamental functions of Commercial Banks. Loans symbolize investments and typically constitute the lengthened assets of banks.
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