Determinants of Non-Performing Loans in Nigeria

Abstract

Credit risk assessment is a major component of macro prudential analysis, with the aggregate nonperforming loan ratio serving as a proxy for the economy-wide probability of default of the banking sector’s overall loan exposure. Consequently, the factors that drive non-performing loans become pertinent. This study provides a macroeconomic model for non-performing loans for Nigeria. Our empirical analysis confirms that in the long run, economic growth is negatively related to non-performing loan. On the other hand, unemployment, credit to the private sector and exchange rate exerts positive influence on nonperforming loans in Nigeria. In the short run, credits to the private sector, exchange rate, lending rate and stock market index are the main determinants of non-performing loans.