Abstract:

Proper management of banks asset, which are largely loans and other credit facilities are the most sought panacea by bank owners and managers in Nigeria. However, lower quality of loans in the banking system or increasing tendency in Non-Performing Loans (NPLs) can lead to higher loan loss provisions, which can negatively affect profitability and capital adequacy ratios of banks. In view of these, an important issue of concern in this study is, how does non-performing loans of Nigerian Deposit Money Banks (DMBs) respond to macroeconomic and bank-specific determinants in Nigeria. This study attempts to answer this question by empirically examine the effect of macroeconomic variables on non-performing loans of DMBs in Nigeria. Using the data within the sample period of 1986-2019 with Autoregressive Distributed Lag (ARDL) model. The study establishes that the level of non-performing loans in Nigeria is affected by the macroeconomic indicators, which are the independent variables. As expected, the variables respond in line with our a priori expectation, however, inflation is insignificant and appear not to affect non-performing loans in Nigeria. The study recommends that the bank regulatory bodies should ensure that DMBs only charge moderate interest rate, since it positively correlate with non-performing loans. This would enable the borrowers to fulfill repayment plans on time. Similarly, a robust economy is important to borrowers so as to be able to redeem their loan obligations in due time. This can be achieved by ensuring that loans assessed are channeled to more productive sectors of the economy.