Non-performing Loans and Profitability of Selected Deposit Money Banks in Nigeria (2010 - 2021)

Rising non-performing loans threaten the financial performance of banks, as it reduces both the bank's profit and its intermediation capacity. The immediate consequence of large amount of non- performing loans in the banking system is the possibility of bank failure. This study examined the effect of non-performing loans on the profitability of selected deposit money banks in Nigeria. Considering that the banking industry is a pillar of the economy, any shock to the industry would certainly affect the financial system and the economy as a whole. In the same way, accumulation of non-performing loans can negatively affect private consumption which may lead to economic contraction. Specifically, this study examined the effect of sub-standard debt, doubtful debt, lost, and loan to assets ratio on return on assets of selected deposit money banks. The study applied the Panel Ordinary Least Square (POLS) technique to estimate the model. The study covered a period of twelve years that is from 2010 to 2021 using data that were carefully obtained from the annual reports and financial statement of the banks. The findings revealed that there is a significant negative relationship between return on assets, sub-standard debt and loan to assets ratio, while a positive significant relationship exists between return on assets and lost loan. On the contrary, doubtful debt was found to have insignificantly related to return on assets. In terms of effect assessment, the study found that sub-standard debt, doubtful debt, lost, and loan to assets ratio have no significant effect on return on assets of selected deposit money banks. The study recommends that banks’ management should follow the provisions of prudential guidelines in granting loan facilities to customers. Deposit money banks should diversify their lending to different sectors of the economy. Concentration of lending to a particular sector of the economy, for instance, oil and gas should be done with caution so as to avoid an accumulation of doubtful debt when there is fluctuation in the price of oil in the international market.