Loan Default and Bank Profitability in First-Tier Commercial Banks in Nigeria

Non-performing loans represent one of the most significant threats to the financial health of commercial banks, with direct implications for profitability, capital adequacy, and depositor confidence. This study examines the relationship between loan default rates and profitability indicators in Nigeria's first-tier commercial banks, focusing on the period from 2018 to 2022. Secondary data are drawn from the published financial statements of five selected Tier-1 banks listed on the Nigerian Exchange Group, including data on non-performing loan ratios, return on assets, return on equity, and net interest margins. The data are subjected to panel regression analysis to isolate the effect of loan defaults on profitability while controlling for macroeconomic variables such as the monetary policy rate and real gross domestic product growth. The study is anchored on credit risk theory and bank performance literature, engaging critically with recent Central Bank of Nigeria supervisory reports on asset quality. Existing studies globally confirm a negative association between non-performing loans and bank profitability, though the Nigerian context introduces unique dimensions related to regulatory forbearance and restructuring policies adopted during the COVID-19 period. This research contributes to the growing empirical literature on Nigerian banking sector stability, with implications for credit officers, risk management divisions, the Central Bank of Nigeria, and the Nigeria Deposit Insurance Corporation. Keywords: loan default, bank profitability, non-performing loans, credit risk, Nigerian banks