BANK LENDING ON RETURN ON ASSETS OF DEPOSIT MONEY BANKS IN NIGERIA

This study examined the effect of bank lending on return on asset of selected deposit banks in Nigeria. The specific objective of the study is to investigate whether non-performing loan and cash reserve ratio have positive and significant effect on return on asset of selected deposit money banks in Nigeria. The study covered a period of 2010-2020. The study made use of expost facto research design using Panel data analysis. The banks covered by this study includes United Bank for Africa Plc, First Bank Nigeria Plc and Zenith Bank Nigeria Plc. Various pre and post estimation test were conducted to fulfill the assumptions of panel data and also to ensure that the variables used are fit for purpose and to avoid spurious regression result. The study also conducted Hausman Test to choose either to use Fixed or Random effect model to interpret the hypotheses of this study. Based on the result of the Hausman Test, fixed effect model was chosen. The study made use of E-view 11.0 to run the analysis. Findings revealed that non-performing loan has positive (0.017) and insignificant (0.847) effect on return on asset of selected deposit money banks in Nigeria while cash reserve ratio has positive (0.410) and significant (0.00) effect on return on asset of selected deposit money banks in Nigeria. Based on this result, the study concluded that bank lending affects the profitability of deposit money banks in Nigeria. The study recommended that Bank should enable to satisfy itself with the five cannons of lending before granting loan to firm in other to reduce non-performing loan. Cash reserve ratio should be adequately monitored by the CBN in order to avoid panic that would lead to bank run.

1 19 Jan, 2024

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