ABSTRACT

The study sought to find the effect of non-performing loans on the performance of commercial banks in Nigeria. Hence, the study used time series data spanning from 1990 to 2017. The study employed ordinary least square (OLS) multiple regression model to analyzed data on return on asset (ROA) used to measure the performance of commercial banks, bad loans, substandard loans and doubtful loans generated from Zenith Bank and Eco bank annual reports covering the time frame reviewed. Following the results of the data analysis, it was found that bad loans has a significant effect on return on asset (proxy for bank performance). Sub-standard loans have a positive and insignificant effect on the performance of commercial banks in Nigeria. Also, it was evident that doubtful loans had a negative and insignificant 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

Contents       Page

Title i

Declaration ii

Certification iii

Dedication iv

Acknowledgments v

Table of contents vi

List of tables viii

Abstract ix

CHAPTER ONE

INTRODUCTION 1

1.1 Background to the Study 1

1.2 Statement of the 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

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 28

CHAPTER THREE

RESEARCH METHODOLOGY 29

3.1 Research Design 29

3.2 Sampling Technique 29

3.3 Nature and Sources of Data 29

3.4 Model Specification 29

3.4.1 Description of Research Variables 30

3.5 Analytical Technique 31

3.5.1 Ordinary Least Squares (OLS) Technique 31

3.5.2 Coefficient of Multiple Determination 32

3.5.3 F-statistic 32

3.5.4 t-Statistic 32

CHAPTER FOUR

4.1 Presentation of Data 33

4.2 Data Analysis and Discussion of Results 34

4.2.1 Regression Analysis 34

4.3 Testing of Hypotheses 36

4.3.1 Testing of Hypotheses One 36

4.3.2 Testing of Hypotheses Two 37

4.3.3 Testing of Hypotheses Three 38

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS 39

5.1 Summary of Findings 39

5.2 Conclusion 40

5.3 Recommendations 40

REFERENCES 41

APPENDIX 47

LIST OF TABLES

Table 4.1: Aggregate Data for the Analysis (1990 to 2017) 33