Munich Personal RePEc Archive

Non-Performing Loans and Universal Bank’s Profitability

Mwinlaaru, Peter Yeltulme and Ofori, Isaac Kwesi and Adiyiah, Kwadwo Agyeman and Idun, Anthony Adu-Asare (2016): Non-Performing Loans and Universal Bank’s Profitability.

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Abstract

ABSTRACT The maintenance of asset quality, efficiency and profitability is a vital requirement for the survival and development of Universal Banks. Loans constitute the main asset class from which banks generate their major portion of income and also signify the greatest risk to banks. Recently, the default rate of loan in the country has been on the increase and perturbing to all. Due to the detrimental effect that Non-Performing Loans (NPLs) have on a bank’s revenue and the economic welfare of a country, the study sort to determine the impact of NPLs on Universal Banks profitability based on a quarterly data from 2000 to 2014. The study employed the ARDL bounds test of co-integration as an estimation technique to show the evidence of long run relationship among the variables. The study found that NPLs had a significant negative impact on Universal Banks profitability in both the short run and long run The study recommends that Universal Banks should revise their lending policy depending on the situation and economic condition of the country as well as minimising their periodic loans targets by not engaging in risky loaning practices.

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