Open Access
American Research Journal of Business and Management
ISSN (Online): 2379-1047
DOI: 10.46568/arjbm
The Impact of Non-Performing Loans on Firm Profitability: A Focus on the Nigerian Banking Industry
Nigerian College of Accountancy, Kwall near Jos, Plateau State, Nigeria
Abstract
The study considered the impact of non-performing loans on firms’ profitability of banks in Nigeria.
The increased incidence of non-performing loans (NPL) in Nigerian bank generated the current literature on
quality of banks profitability. Though there have been reforms in the banking industry to ensure effective
financial institutions, the banks shareholders funds are affected by the non-performing loans. This study made use
of secondary data obtained from the Annual Report and Statement of Accounts of the NDIC for a period of seven
(7) years (2006- 2012). Data were analyzed using the regression statistical tools. The first result revealed that
there is no relationship between the Non-performing Loans (NPL) and Return on Assets (ROA) of Nigerian
Banks. This means that the asset values of the firms are not affected by the level of NPL. The shareholders wealth
maximization is affected as second result showed that there is a relationship between the Non-performing Loan
(NPL) and Return on Equity (ROE) of Nigerian Banks. It is recommended that the banks should ensure that the
banks customer has viable means of repaying the loan, which should be monitored to ensure efficiency.
