Effect of Non-Performing Loans on Bank Performance of Some Selected Commercial Bank in the Nigerian Banking Sector

Timothy Amos John

All over the world financial institutions face massive risk on non-performing loans. As a result of the foregoing, financial institutions are obliged to review their lending policies. As noted by Sharon (2007), loans have a vital contribution towards development of economy. However, its nonpayment also leads to incidence of huge loss on banks in particular and country in general. Hence, this study was conducted to examine both bank specific variable (return on asset ) and macroeconomic factors (gross domestic product, unemployment rate and exchange rate) determinants of NPLs of commercial banks in Nigeria. This research is an explanatory research design that identifies the cause and effect relationships between the NPLs and its determinants. Two commercial banks in Nigeria were sampled judgmentally. This study used secondary sources of data, which is panel data in nature, over the period 2010-2015. These data were collected from annual statement of account and CBN statistical bulletins.  The study found that GDP ratio had positive relationship with ROA, whereas exchange rate as well as unemployment rate had negative relationship with ROA. The study, therefore, recommended that the government should maintain political stability and combat corruption at all levels, banks should have a good track of their customers regarding loans repayment and lastly the banks should employ sustainable manpower.