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ABSTRACT
This study examined determinants of non-performing loans in Nigerian deposit money banks. The main objective of the study was to examine determinants of non-performing loans in Nigerian deposit money banks. A thirty-seven (37) year period was studied covering 1981 to 2017. Descriptive statistics and correlation analysis were carried out on the dependent and explanatory variables. Autoregressive Distributed Lag (ARDL) technique was employed to examine the long and short run relationships existing between the determinants of non-performing loans (real lending rate (RLNRT), inflation rate (INFRT), real exchange rate (REXRT), broad money supply (BMS), gross domestic product (GDP)) and non-performing loan ratio (NPLR). The study reveals that there exist co-integration between the identified determinants and non-performing loans. More specifically, real lending and inflation rates were found to have positive long and short run relationships with non-performing loans at both 1% and 5% significance respectively. Real exchange rate and gross domestic product were found to have negative long and short run relationships with non-performing loans at 1% level of significance. However, money supply has a negative but insignificant influence on non-performing loans in both long and short run. The error correction indicates that the system will re-adjust itself back to equilibrium at the speed of 66.9% after a shock or disequilibrium. Based on the research findings, the following are recommended. (i)The regulatory authorities; CBN, ministry of finance, Nigerian deposit insurance scheme, should work hand in hand to develop more feasible regulatory controls and policies that will ensure the protection of customers’ deposits, build confidence and steer the banking industry to reputable heights. (ii)The top management in the various banking institutions should review their credit policies and make adjustments to ensure a system that identifies a good borrower over a bad borrower.
