Macroeconomic Determinants Of Non-Performing Loans In Nigeria: An Empirical Analysis

Abstract

The intermediation role of banks which is vital for the development of any nation can be adversely affected by non-performing loans. This study investigated the macroeconomic determinants of non-performing loans in Nigeria, using time series data for the period 2005 to 2014 collated from Central Bank of Nigeria Statistical Bulletin, Nigeria Deposit Insurance Corporation annual report, World Bank Development Indicators and International Financial Statistics. The choice of the period 2005 to 2014 was premised on the fact that the number of banks in Nigeria was reduced from 89 to 25 in 2005 due to the banking recapitalization exercise initiated by the CBN which led to the consolidation of banks. The dependent variable used in the study was non-performing loan (NPL). Independent variables were gross domestic product growth rate (GDPGR), inflation (INF), lending rate (LR), exchange rate (ER), money supply to gross domestic product (M2GDP), and unemployment rate (UR). The outcome of the regression result showed that GDPGR has a positive relationship with NPL. The result also revealed that INF and ER have a positive relationship with NPL while LR, M2GDP, and UR have a positive and significant relationship with NPL. Of the six macroeconomic variables used in the study, it can be observed that only LR, M2GDP, and UR determine NPL in Nigeria while GDPGR, INF, and ER have a positive relationship with NPL but do not influence or determine NPL in Nigeria. The policy implication of this study is that the monetary authorities should ensure that the lending rate charged on loans by deposit money banks is reasonable to enable borrowers to repay the borrowed fund. Finally, the government should direct its monetary and fiscal policies towards reducing unemployment by creating an enabling environment conducive for business growth through the provision of social and infrastructural facilities.