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" Determinants of Non-performing Loans of Deposit Money Banks in Sub-Saharan Africa "
Oni, Olusegun Opeyemi
Salami, A O
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Latin Dissertation
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| Language of Document
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English
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| Record Number
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1105712
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| Doc. No
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TLpq2321833107
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| Main Entry
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Oni, Olusegun Opeyemi
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Salami, A O
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| Title & Author
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Determinants of Non-performing Loans of Deposit Money Banks in Sub-Saharan Africa\ Oni, Olusegun OpeyemiSalami, A O
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| College
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Kwara State University (Nigeria)
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| Date
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2019
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| student score
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2019
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| Degree
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Ph.D.
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| Page No
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198
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| Abstract
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The risk of non-performing loans (NPLs) in banking industry is quite substantial and its minimization is essential for growth of banking industries and overall economic development of Sub-Sahara African region.Therefore, any policy response in the resolution of NPLs first requires identifying these underlying determinants. It is against this background, that this study investigates the determinants of non-performing loans of Deposit Money Banks in Sub-Saharan Africa. Precisely, the study focused on bank specific, macro-economic, global and institutional factors as key determinants of NPLs of Deposit Money Banks in Sub-Saharan Africa. The study adopted an ex-post facto research design using a panel data covering the period 2006-2016. The data were collated from various sources namely; the World Bank Development Indicators, International Monetary Fund Database, World Bank Governance Indicators and Bank Scope Database for the period under study. A total of twenty one (21) variables comprising of five (5) bank specific variables, five (5) macro-economic variables, two (2) global variables, eight (8) Institutional variables and a control variable were examined during the course of study. This study applied system GMM technique with an elaborated econometric method, based on a panel set from 23 Sub-Sahara African countries. From the whole sample estimation the coefficient of two bank specific factors namely; bank capital adequacy (0.09%) and bank return on assets (0.98%) were significant on NPLs at (5% and 1%) respectively alongside, one year lag of NPLs with coefficient value of (0.94%) significant at (5%) which was captured based on the dynamic nature of the model. Furthermore, the coefficient of three macroeconomic factors namely growth in real GDP with coefficient value of (-0.17%), bank credit to private sector(% of GDP) with coefficient value of (0.24%) and bank credit to government sector(% of GDP) with coefficient value of (0.26%) were significant on NPLs at (5%, 5% and 1%) respectively. For global factors, the two factors of international oil price with coefficient value of (-0.04%) and global financial crisis with coefficient value of (0,116%) were significant on NPLs at (5%, and 1%) respectively. Also, four Institutional factors; namely control of corruption with coefficient value of (0.44%), financial freedom with coefficient value of (0.13%), rule of law with coefficient value of (0.341%) and regulatory quality with coefficient value of (-0.618%) were significant on NPLs at (5%, 5%, 5% and 5%) respectively. Finally, from the robust estimation conducted on the main model some credit risk factors that were not significant on the whole sample became significant in the sub-sampled estimation which is an evidence of heterogeneity characteristics of countries in SSA. It is therefore recommended among others, that management of Deposit Money Banks in SSA should pay attention to the performance of the real economy when extending loans to their customers, especially during economic boom, given the reality that loan delinquencies are likely to be higher during periods of economic downturn. Furthermore, government of SSA countries need to adopt effective legal restructuring with respect to bad loans, improve the functioning of their regulatory bodies, reduce corruption and government interference in banking businesses so as to decline the issues of NPLs.In conclusion, for Deposit Money Banks in SSA to mitigate the problems of NPLs and enhancing credit quality, both internal and external factors should be put into consideration for sustainable financial system stability.
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Finance
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