Asset Quality and Financial Performance of Deposit Money Banks in Nigeria

The performance of a banking institution is largely driven by its ability to increase its customers' patronage, retain them and manage its assets and liabilities to enhance optimal returns.This can be done through banks maintaining adequate capital and quality assets for better performance. Even though banks are highly regulated and capital adequacy requirements have been in place since 1988 in Nigeria, many banks have experienced poor performance, as indicated by high levels of credit risk, poor-quality loans and a high incidence of non-performing loans. It is, thus, imperative to ascertain the effect of asset quality on the financial performance of Deposit Money Banks (DMBs) in Nigeria. This study employed ordinary least square regression analysis with emphasis on fixed effect and random effect models. The findings of this research revealed that non-performing loans have a negative and not significant effect on the financial performance of DMBs in Nigeria (â = - 0.022478, P >0.05), and loan loss provisions have a negative significant effect on the financial performance of Deposit Money Banks in Nigeria (â = - 0.002954, P