DETERMINANTS OF NON-PERFORMING LOANS (NPLS) IN EMERGING ECONOMIES EVIDENCE FROM NIGERIAN BANKING INDUSTRY

DETERMINANTS OF NON-PERFORMING LOANS (NPLS) IN EMERGING ECONOMIES EVIDENCE FROM NIGERIAN BANKING INDUSTRY

ABSTRACT

This study examined the determinants of non-performing loans in emerging economies with evidence from the Nigerian banking industry. The study adopted the ex-post facto design. Time series data for the period 1993-2014 were collated from the Central Bank of Nigeria Statistical Bulletin and Financial Statement of banks for the period. The Ordinary least square regression was used to test the five hypotheses stated. Non-performing loans measured by the natural logarithm of aggregate non-performing loans of banks represented the dependent variable while gross domestic product, inflation rate, total loans and advances, total assets and bank’s lending rate were adopted as the independent variables for the five hypotheses of the study. Macroeconomic variables such as exchange rate, and interest rate were also included as control variables. Descriptive statistics on the dependent, independent and control variables were also computed and graphed to complement the regression results. The result emanating from this study revealed that gross domestic product had negative effect on non-performing loans; Inflation rate had positive effect on non-performing loans but was insignificant; total loans and advances had positive effect on non-performing loans and was statistically significant at the 0.05 level; total Assets exerted negative effect on non-performing loans and was statistically significant at the 0.05 level and Bank lending rate had positive and insignificant effect on non-performing loans. The study therefore concludes that bank-specific factors drive changes in or determine Non-performing loans more than macroeconomic factors in Nigeria. This should affect the direction of economic policies in the country. It is recommended, among others, that macroeconomic policy should be directed at sustaining economic growth as it curbs non-performing loans in the banking industry.