Chapter One — 1.1 Background to the Study

Non-Performing Loans has increasingly attracted the attention of researchers, regulators, and practitioners concerned with profitability of deposit money banks. This growing interest reflects the recognition that non-performing loans does not operate in isolation, but interacts with a wider set of institutional and market conditions found within Selected Microfinance Banks in Nigeria.

Within the context of Selected Microfinance Banks in Nigeria, this relationship carries particular significance. Organizations in this setting operate under a distinct combination of economic, regulatory, and market conditions that may amplify or dampen the effect of non-performing loans on profitability of deposit money banks, making a context-specific inquiry both timely and necessary.

1.2 Statement of the Problem

Despite a growing body of literature on non-performing loans, there remains limited consensus on the precise nature of its relationship with profitability of deposit money banks, particularly within Selected Microfinance Banks in Nigeria. Many organizations continue to make decisions about non-performing loans without a clear, evidence-based understanding of how those decisions ultimately affect profitability of deposit money banks. This gap between practice and empirical understanding is the central problem this study seeks to address.

1.3 Objectives of the Study

1. To examine the effect of Non-Performing Loans on profitability of deposit money banks in Selected Microfinance Banks in Nigeria.
2. To assess the extent to which non-performing loans influences profitability of deposit money banks within the study area.
3. To identify the challenges associated with non-performing loans in relation to profitability of deposit money banks.
4. To recommend strategies for optimizing non-performing loans in order to improve profitability of deposit money banks.

1.4 Research Questions

1. What is the effect of non-performing loans on profitability of deposit money banks in Selected Microfinance Banks in Nigeria?
2. To what extent does non-performing loans influence profitability of deposit money banks within the study area?
3. What challenges are associated with non-performing loans in relation to profitability of deposit money banks?
4. What strategies can be adopted to optimize non-performing loans in order to improve profitability of deposit money banks?

1.5 Significance of the Study

Beyond its academic contribution to the field of finance / banking, this study has practical value for management teams within Selected Microfinance Banks in Nigeria seeking to understand how non-performing loans translates into measurable outcomes around profitability of deposit money banks. It is equally useful to students and future researchers looking for a localized empirical reference on this relationship.

1.6 Scope of the Study

The study is limited to an examination of Non-Performing Loans and its relationship with profitability of deposit money banks within the context of Selected Microfinance Banks in Nigeria. It reflects a MSc-level scope of analysis and relies on data and perspectives available within that scope; generalizing the findings beyond this specific context should therefore be done with appropriate caution.