Effect of Bank-Specific Attributes on Non-Performing Loans in Deposit Money Banks in Nigeria

Abstract

Financial stability in the banking sector of every economy largely depends on the quality of the risk assets and bank attributes have also been identified by scholars as one of the significant determinants of the quality of bank credit. This study examined the effect of bank-specific attributes on non-performing loans (NPLs) in deposit money banks in Nigeria. Study proxies include, ownership concentration, operational efficiency, capital adequacy, return on asset and loan-to-asset ratio for the period 2011-2022. Ex-post-facto research design was employed and population comprised of all the listed deposit money banks on the floor of the Nigerian Stock Exchange group. Data was sourced from annual audited accounts and financial reports of the listed deposit money banks. Descriptive statistics, correlation matrix and panel regression techniques were the main statistical tools used in the analysis of data. Findings showed that ownership concentration and capital adequacy have negative and insignificant effect on non-performing loans while operational efficiency has a positive and insignificant effect on non-performing loans. Similarly, loan-to-asset ratio has a positive and significant effect while return on asset has a positive and significant effect on non-performing loans. Based on these findings, the study concludes that the loan portfolio quality of listed deposit money banks in Nigeria is determined by bank-specific attributes such as capital adequacy, operational efficiency, and loan-to-asset ratio.  The study thus recommends that banks should intensify their lending efforts with greater efficiency to curb the rising position of bad credit in the banking sector. Furthermore, banks should adhere strictly to regulatory guidelines on debt ratio measures using well-trained and competent personnel to limit the deteriorating position of non-performing loans in the banking sector.