LOANS AND ADVANCES EVALUATION WITH DISCRIMINANT ANALYSIS: A CASE STUDY OF FIVE COMMERCIAL BANKS

LOANS AND ADVANCES EVALUATION WITH DISCRIMINANT ANALYSIS: A CASE STUDY OF FIVE COMMERCIAL BANKS

ABSTRACT

The study examined critical factors that discriminate between Non-performing loans and advances and performing ones in commercial Banks.  Non-performing credits has been a major cankerworm that continuously affects the Nigerian Banking System. A linear discriminant function  was developed after considering the eight factors responsible for discriminating between Performing credits and Non-performing credits.  The study revealed that only two factors; years of experience and the tenor of the credit facility were the most important discriminatory factors that successfully discriminate between Performing and Non-performing credits.  The model developed for the analysis is  Y = 0.282 X4 – 0.234X8 . This model was evaluated using F-value, Chi-square, Eigenvalue, Canonical correlation and Wilk’s Lambda, and it was confirmed to be significant in discriminating between the two credit groups.