EFFECT OF LOAN-TO-ASSET RATIO ON NON-PERFORMING LOANS IN DEPOSIT MONEY BANKS IN NIGERIA.
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Abstract
This study examined the effect of loan-to-asset ratio (LAR) on Non-Performing loans in deposit money banks in Nigeria. The study used an ex post facto research design. The population of the study comprised all the 14 quoted deposit money banks in Nigeria with a sample size of eight (8) deposit money banks licensed with international authorities consisting of Access Bank Plc., Fidelity Bank Plc., First City Monument Bank Plc., First Bank Nigeria Ltd., Guarantee Trust Bank Plc., Union Bank of Nigeria Plc., United Bank for Africa Plc and Zenith Bank Plc. Data was generated from the annual financial reports and accounts of the sampled deposit money banks, the Central Bank of Nigeria, and the Nigerian Exchange Gro
up respectively. Descriptive statistics, correlation tests and Panel regression were used for analysis. Panel regression was used to analyze the data and the findings showed that loan-to-asset ratio has a negative and significant effect on non-performing loans of deposit money banks in Nigeria. Furthermore, bank size has a positive and insignificant effect on non-performing loans of deposit money banks in Nigeria. The study recommends that the CBN should constantly update its supervisory skills and strategies while enforcing its lending policy guidelines to achieve stability in the banking sector. Similarly, management of Deposit Money Banks should avoid charging high-interest rates on loans and advances as well as lending to high-risk borrowers to bring cases of loan defaults to the barest minimum. This measure will no doubt curtail the excessive accumulation of bad loans and financial crises in the banking sector.
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