Effect of Regulatory Requirement Compliance on Non-Performing Loan of Deposit Money Banks in Nigeria

In banking operations globally, granting of loans and advances remains the primary business of every bank and for this reason; loan quality is considered a primary indicator of financial soundness and health of banks. However, banks are exceeding CBN 5% threshold on non-performing loans that exposed them to huge unpaid loans due to borrower’s defaults in honouring debt obligations and this may be attributed to poor adherence to regulatory requirements (credit creation, reserve requirements, statutory reserves, asset quality, and prime lending rates). The study adopted the ex-post facto research design. The study population was 10 deposit money banks quoted on the Nigerian Stock Exchange as at 31st December 2018. Validated data were collected from the selected banks for 12 years (2007-2018), giving 120 firm years of observations. The reliability of the data was premised on the certification of the financial statements by the external auditors and data were subjected to pre-tests using descriptive statistics, correlation, unit ischolar_main tests and co-integration test. Data were analysed using descriptive and inferential statistics. The result show that regulatory requirements significantly effects non-performing loan (Adj.R2 = 0.286, F (9, 96) = 5.974, 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%. The study recommended the creation of a special court that will be adjudicating on loan default and recovery matters expeditiously to discourage the accumulation of bad credit which is hindering bank performance in Nigeria.