Abstract
This study investigated the relationship between non-performing loans and the profitability of banks in Nigeria for the period 1989-2013 using ADF Unit Root test, descriptive statistics and estimation regression techniques. Four variables were identified and analyzed such as Non-Performing Loans (NPLs), Return on Equity (ROE), Return on Assets (ROA) and Maximum Lending Rate (MLR). Panel data with respect to the four variables were obtained from the CBN and NBS. The study commenced firstly with the Augmented Dickey Fuller (ADF) unit root test, followed with descriptive statistics, and estimation regression test. The results of the ADF Unit Root test showed that all the variables of interest were integrated of order 1(1) and were stationary at first differencing. The estimation regression results indicated that ROE and MLR had statistically significant negative influence on NPLs, while ROA had statistically insignificant negative influence on NPLs. These results as they stand have some policy implications that the high level of non-performing loans tends to reduce the profitability of banks in the long run in Nigeria. Thus the study among others recommend that credit bureau or credit reporting agencies should be strengthen so as to cut on down fresh loans and reduce the high level of non-performing loans in the banking sector of Nigeria.