Impact of Non-Performing Loans on Profitability of Deposit Money Banks in Nigeria

Abstract

This study examines impact of Non-Performing Loans on Profitability of Commercial Banks in Nigeria. The cardinal objective is to investigate the relationship between Non-Performing Loans Ratio (NPLR) and Return on Assets (ROA) from 2011 to 2012. Simple linear regression model and data collected from secondary sources; Audited Annual Reports of listed commercial banks in Nigeria and the Nigerian Exchange Group Plc. were used to conduct analysis. The findings reveal the independent variable (NPLR) impacts on the dependent variable (ROA). We recommend the regulatory bodies introduce incentive system to reward the banks that operate within their NPLR threshold. The banks should evolve a mechanism of detecting Non-Performing Loans early, conduct periodic test on collaterised assets against impairments and upgrade accordingly and monitor loans granted from disbursement to the end to ensure the funds are not mis-used.