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

This study investigates the impact of non-performing loans on deposit money banks in Nigeria and provides recommendations for mitigating its effects on the financial performance of these banks. The research utilizes net interest margin and cost-to-income ratio as indicators of financial performance. Secondary data from the financial statements of ten selected banks, spanning a ten-year period from 2013 to 2022, was analyzed using descriptive statistics and panel least square regression analysis. The results indicate a significant negative relationship between non-performing loans and net interest margin, suggesting that an increase in non-performing loans leads to a decline in profits derived from interest-bearing assets. Additionally, a positive and statistically significant relationship was observed between non-performing loans and cost-to-income ratio, indicating that an increase in one variable results in an increase in the other. Based on these findings, it is recommended that deposit money banks enhance their credit management strategies and provide professional guidance to potential loan customers. Regulatory bodies should also implement measures to prevent unhealthy competition among banks, which may contribute to fraudulent activities, hasty decision-making, and inaccurate reporting in order to improve financial figures.