Impact of Non-Performing Loans on the Performance of Selected Commercial Banks in Nigeria

Abstract

The study examined the impact of Non-performing Loans on the Performance of Selected Commercial Banks in Nigeria covering the period 2000 - 2013 with special emphasis on Access Bank, United Bank for Africa and Union Bank of Nigeria Plc. It specifically determined the effect of non-performing loans, provision for loan loss and loans and advances on the performance of banks measured by Return on Assets and Return on Equity. The study utilized secondary data obtained from annual report and accounts of the selected banks for the period under study. The data were analyzed using ordinary least square method and ratio analysis. The specific finding of the work is that return on asset and return on equity have inverse relationship with non-performing loans and loan loss provision respectively while they are positively related to loans and advances. The conclusion therefore is that the effects of non-performing loans on Commercial Banks’ performance is negative and cannot be underestimated, and poses a fundamental danger to the very existence of the Banks as corporate business entities. Based on the above findings, the work recommends that banks should maintain high credit standards while the Apex Bank and other regulatory agencies should maintain high surveillance on  banks’ credit operations.

Keywords: Loans and advances, Nonperforming loans, Provision for loan loss, Deposit Money Banks, Return on Assets and Return on Equity.