ASSET QUALITY AND BANK PROFITABILITY

ASSET QUALITY AND BANK PROFITABILITY

Author by Dr. Appolos Nwaobia

Language: English

Abstract

This paper analyzed the relationship between Risk assets (Loans and Advances) and bank profitability. Secondary data used for the study were got from the published Annual Reports and Accounts of the sample banks used as well as from Central Bank of Nigeria Banking Supervision Reports. Regression analysis was employed to establish if a significant relationship exists between Risk assets quality and bank profitability. The Student’s t-test was employed as a test of significance. Tests were conducted at both individual bank level and industry level. The results of regression analysis show the relevance of risk assets quality in explaining differences in profitability and risk among Nigerian banks. Bank- level regression results for each of the 15 banks studied reveal a relationship between asset quality and profitability, nevertheless, insignificant for 14 of the banks. Industry level result reveals a significant relationship between asset quality and bank profitability. The quality of loans and advances, in fact explains 78.18% of changes in profitability of Nigerian banks. This result underscores the need and relevance of stiff regulation of credit administration and monitoring in the Nigerian banking industry.


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