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Determinants of nonperforming loans after recapitalization in the Nigerian banking industry: Does competition matter?

Determinants of nonperforming loans after recapitalization in the Nigerian banking industry: Does... This paper examines the effect of competition on nonperforming loans in the Nigerian banking industry between 2011 and 2018 using the system generalized method of moments. The findings establish the competition‐stability hypothesis in the Nigerian context. The interaction between competition and bank size/capitalization has a positive and significant effect on nonperforming loans. These results showed that low competition increased nonperforming loans in the Nigerian banking industry while bank size and capitalization enhanced competition to increase nonperforming loans. Also, bank size/capitalization are complementary for addressing nonperforming loans. The paper recommends that the Central Bank of Nigeria (CBN) regulates the market power of the five largest banks in the industry to address the adverse effects of competition on mounting nonperforming loans in the Nigerian banking industry. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png African Development Review Wiley

Determinants of nonperforming loans after recapitalization in the Nigerian banking industry: Does competition matter?

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Publisher
Wiley
Copyright
© 2022 African Development Bank
ISSN
1017-6772
eISSN
1467-8268
DOI
10.1111/1467-8268.12661
Publisher site
See Article on Publisher Site

Abstract

This paper examines the effect of competition on nonperforming loans in the Nigerian banking industry between 2011 and 2018 using the system generalized method of moments. The findings establish the competition‐stability hypothesis in the Nigerian context. The interaction between competition and bank size/capitalization has a positive and significant effect on nonperforming loans. These results showed that low competition increased nonperforming loans in the Nigerian banking industry while bank size and capitalization enhanced competition to increase nonperforming loans. Also, bank size/capitalization are complementary for addressing nonperforming loans. The paper recommends that the Central Bank of Nigeria (CBN) regulates the market power of the five largest banks in the industry to address the adverse effects of competition on mounting nonperforming loans in the Nigerian banking industry.

Journal

African Development Review – Wiley

Published: Sep 1, 2022

Keywords: capitalization; competition; impaired loans; Nigeria; nonperforming loans

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