Non-Performing Loans and Financial Performance of Listed Deposit Money Banks in Nigeria

Abstract

This study examines the impact of credit risk on financial performance of listed Deposit Money Banks (DMBs) in Nigeria. The motivation for the study arises from persistent concerns over declining profitability, rising non-performing loans, and the overall stability of the Nigerian banking sector. Specifically, the study investigates the effect of Non Performing Loan Ratio (NPLR), Loan Loss Provision Ratio (LLPR), and Non-Performing 
Loan Coverage Ratio (NPCR) on Return on Assets (ROA). A correlational research design was adopted, utilizing secondary data extracted from the audited annual reports of 13 listed Nigerian DMBs over the period 2015–2024. Panel Corrected Standard Errors (PCSE) regression technique was employed to analyze the data. The findings reveal that LLPR has 
a negative and statistically significant effect on ROA, indicating that increased provisioning reduces profitability. NPCR was found to have a positive and significant impact on ROA, suggesting that adequate loan coverage enhances financial performance. However, NPLR exhibited a negative but insignificant relationship with ROA. Firm size showed a positive but insignificant direct effect on financial performance, though it marginally moderated the relationship between LLPR and ROA. The study concludes that effective credit risk management, particularly optimal provisioning and adequate coverage ratios, is crucial for sustaining profitability in Nigerian DMBs. The study recommends strengthened credit monitoring systems, balanced provisioning strategies, and regulatory emphasis on maintaining adequate coverage ratios in order to enhance bank financial stability. 

Keywords: non-performing loans, financial performance, deposit money banks, 
Nigeria