Loan Portfolio Management and Commercial Banks' Profitability in Nigeria (2000-2023)

Abstract

Lending is considered the main business of commercial banks, and it is regarded as the most crucial part of any business venture. Thus, commercial banks in Nigeria face numerous challenges that impact their operations. This study investigated the impact of loan portfolio management on the profitability of commercial banks in Nigeria from 2000 to 2023. Using the ARDL approach, the study employed preliminary econometric techniques to analyze the results, including descriptive statistics, a correlation matrix, and the Unit Root test. Return on Assets was used as the dependent variable, while Non-performing Loan (NPL) and Loan to Deposit Ratio (LTDR) served as independent variables. The findings showed that both Non-Performing Loans (NPL) and Loan to Deposit Ratio (LDR) have a positive but statistically insignificant effect on the return on assets of commercial banks in Nigeria. Based on these results, this study recommends that commercial banks implement effective loan recovery strategies, such as loan negotiation and restructuring. Ensuring efficiency in loan recovery will help increase returns for commercial banks in Nigeria.