Monitoring Activities and Non Performing Loans of Financial Institutions in Nigeria

Abstract

Recent complexities in the Nigerian financial sector underscore the critical need for effective monitoring activities to mitigate the risks associated with Non-Performing Loans (NPLs). This study investigates how monitoring activities, particularly focusing on board independence and audit quality, affect NPLs in Nigerian financial institutions. Data were obtained from the annual reports of selected financial institutions covering the period from 2010 to 2022. The population includes all eleven categories of financial institutions in Nigeria as of December 31, 2022. However, a purposive sampling approach was employed, focusing on four specific categories, totaling 38 financial institutions. The feasible generalized least squares regression method was used for data analysis to ensure a robust and reliable result. The findings reveal that while board independence negatively impacts NPLs, the effect is not statistically significant. Conversely, audit quality shows a negative and significant effect on NPLs. The findings suggest that both board independence and audit quality have the potential to mitigate the incidence of non-performing loans in Nigerian financial institutions. However, the significance of their effects varies. Recommendations include enhancing board members training and development, mandating high-quality audits, and strengthening regulatory oversight to improve monitoring capabilities.