Abstract
Profitability is critical to the survival of Nigerian deposit money banks which is consistently been eroded by the impaired risk assets. Hence, this study was conducted to examine influence of risk assets impairment on performance of Nigerian deposit money banks. The specific objectives of the study were to; (i) determine the effect of impairment loss on operating profit; (ii) analyze effect non-performing loans ratio affect return on assets of Nigerian deposit money banks. Secondary data were collected and analysed using fixed and random effect regression analysis methods from a sample of 14 listed Nigerian deposit money banks. The study revealed that impairment loss, have significant negative relationship with operating profit (β=2.294, p‹ 0.01) and non-performing loan ratio have significant positive relationship with return on assets (β=0.067, p‹ 0.1). However, other variables such as inflation, liquidity and gross domestic product per capital also have effect on banks performance. The study concluded that risk assets impairment has significant negative influence on performance and that inflation, liquidity and gross domestic product have negative impact on profitability, while bank size has positive impact on profitability. The study recommended that; bank directors should put effective risk assets impairment test in place to boost reported profitability; the bank management should ensure effective management of liquidity ratio to boost return on equity; government policymakers should ensure that banks are mandated to disclose their risk assets impairment and expand their size by extending banking services to the unbanked areas.
Highlights
Background to the Study Profitability is critical to the performance and survival of any business entity globally
According to Aboh (2011), majority of those banks failed mainly because of over impaired risk assets and high non-performing loan in their statement of financial statement, Nigerian banking system opted for IFRS adoption in line with global standard in 2012 to facilitate adequate financial reporting
Objectives of the Study The general objective of this study is to investigate the influence risk assets impairment have on the profitability of deposit money banks in Nigeria
Summary
Background to the Study Profitability is critical to the performance and survival of any business entity globally. Since the last global financial crisis, banking sector performance has not been stable, due to large value of bad loans and impairment of performing ones. In last decade merger and acquisition of some Nigerian banks had taken place, while banks like Oceanic Bank, Intercontinental Bank, Afribank, Platinum and Habib Bank, Equatorial Trust Bank, Spring Bank, First Inland Bank lost their identity in that process (Nigeria Deposit Insurance Corporation, 2011); and most recently Skye Bank and Diamond Bank were aquired by another banks. According to Aboh (2011), majority of those banks failed mainly because of over impaired risk assets and high non-performing loan in their statement of financial statement, Nigerian banking system opted for IFRS adoption in line with global standard in 2012 to facilitate adequate financial reporting. The impact of this collapse was terribly felt by many citizens of Nigeria, because many employees lost their jobs, as productivity level of the existing ones shrank
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