Bad Debts and Investment Growth among Nigerian Banks: An Empirical Analysis
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Date
2015-05
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Publisher
IJECM.co.uk
Abstract
The principal task of bank management is to generate sufficient return on their shareholders
investment. However, of recent, there have been criticisms and allegations of bad and doubtful
debts reported by banks annually. This raise the question as to whether banks accomplish the
task of maximizing shareholders’ returns on their investment and whether the banking system is
still one of the most enviable and profitable investment options in Nigeria. In the study, an
attempt was made to identify the causes of bad and doubtful debts, effects on banks’ profits and
investment and how they can be ameliorated with the use of appropriate securities and
management teams put in place. The study made use of secondary data collected from ten-year
annual reports of First Bank Nig. PLC, a sample selected purposively from Nigerian commercial
banks. Regression analysis was used to determine the effect of bad debts on the investment
growth of the bank. And it was discovered that bad and doubtful debts has an inverse
relationship with investment growth of the bank. And, loan losses and credit risk if not checked
will lead to low investment growth rate thereby jeopardizing shareholders’ returns. It is therefore
suggested that both commercial banks and monetary authorities should put necessary
machinery in place to safeguard any impending loan losses in the banking sector in order to
instill confidence among depositors and boost the Nigerian economy as a whole.
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Keywords
Bad Debt, Investment Growth, Shareholders, Credit Management, Banking, Return on Investment, Nigeria