ABSTRACT

 The study examined the impact of loan portfolio on commercial banks profitability in Nigeria using time series data from 1986-2014. The data for the study were sourced from various issues of the Nigerian Deposit Insurance Corporation’s annual reports and Central Bank of Nigeria’s statistical bulletin. Profit before Tax (PBT) was used as proxy for profitability while Loan to Deposit Ratio (LDR), non-performing loan (NPL), loans and advances (LA) and lending interest rate (L1NR) were proxies for loan portfolio management. The data set was subjected to Augmented Dickey fuller (ADF) test to ascertain the stationary properties. Descriptive statistics was used to assess the socioeconomic characteristics of the variables. Akaike information criterion was equally utilised to obtain the optimal lag length of the variables. Serial correlation test was employed to verify the absence of autocorrelations in the regression model using Q-statistic. The study found that three of the explanatory variables (NPL, LDR L1NR) positively and significantly affected the explained variable (PBT) while loans and advances (LA) positively and insignificant effect on the dependent variable. The total variation in the dependent variable jointly explained by the explanatory variables (R2) was 74.63% indicating goodness offit and the unexplained variation was left stochastic. The F-statistic value 10.30042 at 1% significant level indicates the appropriateness ofthe model. In line with the findings, the study recommends that: commercial banks should evolve more realistic measures for making borrowers truly responsible and responsive to their debt so as to minimize default rate; allocate a guided attention to the movement in the ratios of loans to total deposits in order to always arrest its likely destructive effect-on Banks’ balance sheet; step up their financial intermediation role by extending credits to productive sectors so as to adequately fill in the gaps between the deficit and the surplus economic unit as well improve on their credit creation by extending more credit to the deficit unit of the economy as this invariably boosts the profitability index.