Credit Gone Wrong: The Cash Flow Effect of Non-Performing Loans in Nigerian Listed Banks

Abstract

Many Nigerian listed banks face significant challenges with non-performing loans, where borrowers fail to meet their repayment obligations. Perhaps, factors such as poor credit assessment, economic fluctuations, and weak loan monitoring have contributed to the accumulation of non-performing loans, making it difficult for banks to maintain smooth financial operations and cash flow performance over time. Hence, this study examined the effect of non-performing loans on the cash flow performance of Nigerian listed deposit money banks. The research adopted an ex-post facto design, with a population of twelve listed banks, from which eleven banks were purposively selected due to the availability of complete financial data. Secondary data were collected from the banks’ annual reports covering the period 2015 to 2024. The hypothesis was tested using robust least squares regression to account for heteroskedasticity and non-normality in the residuals. The finding revealed that non performing loans had a significant negative effect on cash flow performance (β = -0.490695, p = 0.0040). The study concluded that reducing non-performing loans and improving operational efficiency are crucial for sustaining liquidity and financial stability in Nigerian listed banks. Therefore, bank management need to strengthen credit assessment and monitoring processes to reduce loan defaults. By implementing more rigorous borrower evaluation procedures and regular follow-ups on outstanding loans, management can improve repayment rates, enhance liquidity, and maintain stable cashflow performance.