Debt Recovery and Bank Performance in Nigeria: Evidence from Panel Data Analysis

Abstract

High non-performing loan levels continue to threaten the profitability and stability of Nigerian banks, yet the empirical link between debt recovery practices and bank performance over an extended period remains underexplored. Anchored in credit rationing theory of Stiglitz and Weiss and the psychological theory of credit recovery, the study used panel data from seven Nigerian banks (2004–2023, 140 observations). Four credit recovery indicators, NPL ratio, loan loss provisions, debt recovery rate, and write-off ratio—were regressed against net income and ROE using a Random Effects panel model, selected via Hausman and unit root tests. Loan recoveries (β = 0.106, p = 0.047), write-offs (β = 0.145, p = 0.002), and loan loss provisions (β = 0.419, p = 0.000) all had significant positive effects on net income, with the model explaining 42.7% of the variation (R² = 0.4272). it concludes that credit recovery, write-offs, and provisioning practices significantly enhance Nigerian bank performance, confirming that credit risk management is a key driver of profitability rather than a mere compliance exercise. The study offers rare two-decade panel evidence jointly assessing recoveries, write-offs, and provisioning in Nigerian banking, provides empirical support for credit rationing theory in an African context, and reveals a strategic role for write-offs in balance-sheet management, an area prior studies have largely overlooked.it is recommended that Nigerian banks should strengthen proactive loan recovery mechanisms, such as enhanced credit monitoring systems, dedicated recovery units, and data analytics for tracking delinquent loans, while adopting transparent, strategic write-off policies and maintaining forward-looking, IFRS 9–aligned provisioning standards to sustain profitability and manage credit risk effectively.