NON-PERFORMING LOANS, LOAN GROWTH AND THE LIQUIDITY OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

This study examines the effect of Non-Performing Loan (NPLs) and Loan growth on liquidity of

Deposit Money Banks (DMBs) in Nigeria. The study utilized documentary data collected from

annual reports and accounts of the sampled Banks for the periods 2012–2022. Data was first

analyzed by means of descriptive statistics to provide summary statistics for the variables and

Consequently, correlation analysis was carried out using Pearson correlation technique for the

correlation between the dependent and independent variables. A panel data regression technique

was employed since the data has both time series and cross-sectional attributes. It was found

that the share of NPLs and loan growth in the total volume of loans had negative and statistically

significant effect on banks liquidity, whereas bank size being used as a controlled variable had

positive and significant influence on the liquidity of the DMBs in Nigeria. Thus, based on these

findings, the study recommends that DMBs in Nigeria should follow a balanced approach

between loan portfolio growth and credit risk exposure and maintain control over the NPLs as well

as Size of the bank, which will aid in formulating strategies to enhance their liquidity position,

and in this way, to keep the banking system safe.