Effect of Regulatory Requirements on Loan Loss Provision of Deposit Money Banks in Nigeria

Author(s)

Adeyemi Samson OGUNDIPE , Asikhia. O.U. , Kabouh, N.M. , Ajike, E. ,

Download Full PDF Pages: 25-35 | Views: 563 | Downloads: 134 | DOI: 10.5281/zenodo.3948209

Volume 9 - June 2020 (06)

Abstract

Banking plays a pivotal role in economic development due to its financial intermediation function and it holds the largest financial assets in the global economy. However, in recent years, an increase in NPLs provision diminishes income as banks are exceeding the legal 5% threshold for non-performing loans and are also hindering banks capacity to grant new loans for economic development. This study adopted ex post facto research design. Validated data was collected from the annual financial reports of 10 deposit money banks. The panel regression analysis tool was employed to analyse the data with descriptive statistics, Pearson correlation model, multiple linear regression tools and linearity test, heteroskedasticity, autocorrelation, co-integration and Hausman test were also carried out including analysing the data and results duly interpreted. The result show that regulatory requirements significantly effects loan loss provision (Adj.R2 = 0.345, F(9, 96) = 6.701, p < 0.05), with ρ-value of F-statistics of 0.00, which is significant as it is less than the chosen significant level of 5%. It was recommended that the management of banks’ use of discretion to provide a large sum for loan loss provision should be monitored and prevented to enhance the performance of banks in Nigeria. 

Keywords

Regulatory requirements, loan loss provision, non-performing loans, bank performance. 

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