Impact of Non Performing Loan on Bank Performance in Nigeria A Case Study of Selected Deposit Money Banks

Abstract

The fundamental role of Deposit money banks (Dmbs) is to act as intermediary between surplus unit (supply side) and deficit unit (demand side) of fund. Dmbs objectives are profitability, growth in assets and customer base. To achieve these Dmbs grant loans and advances to individuals, business organizations and government. Loan default could be rampant resulting from low quality of assets, high non-performing risk assets (credit risk) that may result in huge loan losses and thus reduction in bank profitability. This study investigates the impact of non-performing loans on Money deposit banks’ performance in Nigeria. Hypotheses were set and data were sourced from secondary data. The study used the confirmed ECM model (via residual and least square method of analyses. The results revealed that non performing loans have impact Deposit Money Banks performance within the period of study; whereas, the impact of the individually independent variables (net interest margin and deposit to loan.) varied. The study recommends, amongst others that, effective credit policy that is reflected in flexible tenure, restructuring of credit terms and conversion should be adopted in the Deposit Money banks. This policy could help reducing the tempo of nonperforming loan, such that as return on equity is increasing, the possibility of default would decline considerably.