Macro-Economic Variables and Non-Performing Loans of Deposit Money Banks in Nigeria
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Date
2016-12
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University of Ilorin Library and Publications Committee
Abstract
The importance of banking sector in the development of a nation’s economy cannot be overemphasised. Although banks create no new wealth, their activities facilitate the process of production, distribution, exchange and consumption of wealth. Banks need to exercise caution in the performance of their statutory roles and core activities to avoid non-performing loans (NPLs). NPLs in Nigerian Deposit Money Banks (DMBS) were high to the tune of over N649 billion as at 2015; this can culminate into distress. This situation led to mismatch in maturities, liabilities and assets which further reduced liquidity of banks and distorted credit ratings. Hence, this study examined macro-economic variables and non-performing loans of DMBs in Nigeria. Specifically, the study examined the impact of interest rate on non-performing loans in Nigerian DMBs; the effect of the exchange rate on non-performing loans in Nigerian DMBs and the effect of banking reforms on non-performing loans in Nigerian DMBs. The study employed secondary data obtained from Central Bank of Nigeria’s Statistical Bulletin and financial statement of selected banks in Nigeria covering a period of 15 years from 2000 to 2015. Panel least square method of multiple regression analysis was employed to achieve the objectives of the study. Results of the regression analysis revealed that exchange rate has significant impact on non-performing loans with coefficient value of 4.971265 and at 5% level of significance. The study concluded that macro-economic variables have significant impact on non-performing loans of DMBs in Nigeria. The study therefore, recommends that Central Bank of Nigeria should be proactive in determining the exchange rate and be anticipatory in their policy formulations on exchange rate so as to reduce non-performing loans in the Nigerian banking sector.
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Keywords
Interest rates, Exchange rates, Inflation, Deposit money banks, Non-performing loans, Nigeria