LOAN MANAGEMENT RATIOS AND FINANCIAL PERFORMANCE (FP) OF DEPOSIT MONEY BANKS (DMBs) IN NIGERIA

Abstract

This study explored how loan management ratios affect the FP of DMBs in Nigeria from 1994 to 2024. Key indicators examined include the Non-Performing Loan Ratio (NPLR), Loan-to-Deposit Ratio (LDR), Loan Loss Provision Ratio (LLPR), and Coverage Ratio (CR), with Return on Assets (ROA) as the measure of profitability. The research is grounded in theories such as Agency Theory, Credit Risk Theory, and Financial Intermediation Theory, among others. Using an ex-post facto design and secondary data from the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC), the study applies Ordinary Least Squares (OLS) multiple regression through E-Views 10.0. Diagnostic tests for unit root, multicollinearity, autocorrelation, heteroskedasticity, and normality were conducted to ensure robustness. Results show that NPLR, LDR, and CR have positive and significant effects on ROA, while LLPR has an insignificant impact. This suggests that while non-performing loans typically indicate risk, banks may maintain profitability through higher interest margins. Effective loan intermediation and strong coverage ratios also support better returns. However, provisions for loan losses, although crucial for long-term stability, may not show immediate benefits to profit levels. The study concludes that improving loan management can boost FP in the sector. It recommends enhanced risk management, better lending practices, and sufficient capital buffers. These findings provide long-term empirical insights and offer useful guidance for bank managers, policymakers, and regulators.