Asset Quality and Bank Performance: A Study of Commercial Banks in Nigeria

Abstract

The consolidation phenomenon in the Nigeria financial service industry is aimed at ensuring financial stability as the industry experienced severe loan problems and unexpected losses in the past with different loan severity due to divergent banks’ financial strategies. This study examined and evaluates banks asset quality and performance in Nigeria using secondary data obtained from the annual reports and accounts of the six largest banks listed on the Nigeria Stock Exchange based on market capitalization with a sample interval of fifteen-year period from 1999 to 2013. The study adopted the use of ratios as a measure of bank performance and asset quality since it is a verifiable means for gauging the firms’ level of activities while the data were analysed using the Pearson correlation and regression tool of the SPSS 17.0The findings revealed that asset quality had a statistically relationship and influence on bank performance. Based on the findings the study recommends policies that would encourage revenue diversification, minimize credit risk, and encourage banks to minimize their liquidity holdings. Further research on factors influencing the liquidity of commercials banks in the country could add value to the profitability of banks and academic literature.