Non performing loans and profitability of selected deposit money banks in Nigeria (2008-2021)

Abstract

This study examined non-performing loans and profitability of selected Deposit Money Banks in Nigeria. There has been increasing scholarly debates on the direction of policy to effectively ensure the performance of the banking sector. Whilst some scholars have argued that bank profitability is enhanced by minimizing non-performing loans, others argue that government policies and other factors are integral to the profitability of banks. Doubtful assets, sub-standard assets and losses were used as proxies for non-performing loans while return on equity, return on assets and net interest margin were used as proxies for banks profitability. The specific objective of the study is to assess the relationship between sub-standard assets and return on assets of selected Deposit Money banks in Nigeria and to evaluate the relationship between doubtful assets and return on equity of selected Deposit Money banks in Nigeria. Data were obtained from annual accounts of selected banks. In pursuance of the objectives of this study, three hypotheses were formulated and tested using Ordinary Least Square regression analysis. The study found out that there is a significant relationship between Sub-standard assets and Return on asset; there is a significant relationship between Doubtful asset and Return on equity and that there is a significant relationship between Loss assets and bank’s net interest margin of selected Deposit Money Banks in Nigeria at 5% level of significance. The study recommended that there is need for banks in Nigeria to comprehensively engage investors and their customers during loan extension and appraisal to ensure profitability. Banks should actually praticalize the C’s of lending, which has to do with character, credit-worthiness, collateral, capacity etc. before administering loan to investors or customers in order to minimize doubtful loans and losses.