ABSTRACT

The study sought to find the effect of non-performing loans on commercial banks’ profit performance in Nigeria. Hence, the study used time series data spanning from 1997 to 2015. The study employed ordinary least square (OLS) multiple regression model to analysed data on profit after tax used to measure the performance of commercial banks, non-performing loan, substandard loan and doubtful loan generated from Zenith Bank annual reports covering the time frame reviewed. Following the results of the data analysis, it was found that non-performing loans has a significant effect on profit after tax (proxy for bank performance). Sub-standard loans have a negative and insignificant effect on commercial banks performance in Nigeria. Also, it was evident that doubtful loans had a negative and significant effect on commercial banks performance. Hence, the need for a strong policy on the management of banks’ credit facility was recommended, need for an immediate change in the banks’ management style and internal control system of the banks was also recommended. And lastly, need for a proper and well-articulated analyses over all collaterals presented for loans and advances was also suggested.

TABLE OF CONTENTS

Title i

Declaration ii

Certification iii

Dedication iv

Acknowledgements v

Table of Contents vi

List of Tables viii

Abstract ix

CHAPTER ONE 1

INTRODUCTION 1

1.1 Background to the Study 1

1.2 Statement of Research Problem 3

1.3 Objectives of the Study 5

1.4 Research Questions: 5

1.5 Research Hypotheses 6

1.6 Significance of the Study 6

1.7 Scope of Study 8

CHAPTER TWO 9

REVIEW OF RELATED LITERATURE 9

2.1 Conceptual Framework 9

2.1.1 Concept of non-performing loans 9

2.1.2 Concept of financial performance 10

2.1.3 Essence of Non-Performing Loans (NPL) 11

2.1.4 NPLs and financial performance of Banks in Nigeria 12

2.1.5 Intermediation Function of Banks 12

2.1.6 Loan in the Banking Industry 13

2.1.7 Non-Performing Loans in Nigeria 14

2.1.8 Causes of Non-Performing Loans in Nigeria 15

2.1.9 Reducing levels of non-performing loans 17

2.2 Theoretical Framework 18

2.2.1 Theory of Asymmetric Information 18

2.2.2 Theory of life-cycle consumption 19

2.2.3 The Moral Hazard Theory 19

2.2.4 Adverse Selection Theory 20

2.2.5. The Stewardship Theory 20

2.3 Empirical Review 21

2.4 Summary of Literature Review 27

CHAPTER THREE

RESEARCH METHODOLOGY 28

3.1 Research Design 28

3.2 Area of the Study 28

3.3 Population of the Study 29

3.4 Sampling Technique 29

3.5 Nature and Sources of Data 29

3.6 Model specification 29

3.6.1 Description of Research Variables 30

3.7 Analytical Technique 31

3.7.1 Ordinary Least Square Technique 31

3.7.2 Coefficient of Multiple Determination 31

3.7.3 F-Statistics 32

3.7.4 t-Statistics 32

CHAPTER FOUR

PRESENTATION OF DATA, ANALYSIS AND DISCUSSIONS 33

4.1 Presentation of Data 33

4.2 Data Analysis and Discussion of Results 34

4.2.1 Descriptive Statistic 34

4.2.2 Regression Analysis 35

4.2.2.1 Discussion of Results and Hypotheses Testing 37

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND 

RECOMMENDATIONS

5.1 Summary of Findings 40

5.2 Conclusion 40

5.3 Recommendations 41

REFERENCE 42

APPENDIX:  Descriptive Statistics, Regression Results, Linear regression,

     Exponential, Semi log & Double log 46