Determinants of the nonperforming loans of Nigerian deposit money banks

Credit risk is one of the biggest challenges banks in Nigeria are faced with. By implication, it is also the one with dire consequences for their operation and survival, given the fact that a series of banks' failures have significantly been brought into connection with nonperforming loans. Thu...

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Bibliographic Details
Published inEkonomski horizonti Vol. 22; no. 1; pp. 31 - 45
Main Authors Sanyaolu, Wasiu, Siyanbola, Trimisiu, Makinde, Afeez
Format Journal Article
LanguageEnglish
Published Kragujevac Faculty of Economics - University of Kragujevac 01.01.2020
University of Kragujevac
Subjects
Bank deposits
Bank failures
bank-specific indicators
Banking industry
Credit risk
deposit money banks
Economic development
Economic growth
fixed effect and nonperforming loans
GDP
Gross Domestic Product
Interest rates
International finance
Loans
macroeconomic indicators
Macroeconomics
Nonperforming loans
Profitability
Securities markets
Variables
Volatility
Nigeria
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Summary:Credit risk is one of the biggest challenges banks in Nigeria are faced with. By implication, it is also the one with dire consequences for their operation and survival, given the fact that a series of banks' failures have significantly been brought into connection with nonperforming loans. Thus, this study examined the bank-specific and macroeconomic determinants of the nonperforming loans of the listed Deposit Money Banks (DMBs). Regression analysis involving fixed effect was adopted in order to analyze the panel data of the 10 selected deposit money banks in the period from 2008 to 2017. The findings show that the capital adequacy ratio, the size and the loans-to-total-assets ratio negatively and significantly affect nonperforming loans, whereas profitability and age were found to significantly but positively influence nonperforming loans of the Nigerian deposit money banks. More so, the liquidity ratio negatively, but insignificantly, affects nonperforming loans. However, not a single macroeconomic variable exerts a significant effect on nonperforming loans. The study recommends that banks should always deploy strategies for credit risk management by taking cognizance of the bank-specific and economic determinants of the nonperforming loans.
ISSN:1450-863X
2217-9232
DOI:10.5937/ekonhor2001031S