Effect of Bank Characteristics on Loan Default in Selected Microfinance Banks in Southwest, Nigeria

Loan default has become rampant in microfinance banks in Nigeria, the ratio of non-performing loan to total loans of 11% for the period 2014-2023 far exceeded the maximum 5% specified by the Central Bank of Nigeria. The huge volume of loan default has been affecting the outreach, profitability and sustainability of microfinance banks in Nigeria. This aspect of microfinance operations appears to have been sparsely investigated in Nigeria despite its negative consequences on microfinance banks. Therefore, this study investigated the of Bank Characteristics- Loan Appraisal, Loan Monitoring, Disbursement Lag and Bank Size on Loan Default in microfinance banks in Southwest, Nigeria. The study employed survey research design. Four hundred (400) structured questionnaires were administered through on-line survey as well as in-person distribution. Binary logistic regression model was used for analysis at 5% level of significance. The findings revealed that loan appraisal (β = -0.004, p = 0.032) and loan monitoring β = -0.036, p = 0.031) have significant and negative influence on loan default in microfinance banks in Southwest, Nigeria. The study concluded that bank-related factors are key micro-macro determinants of loan default in Nigerian microfinance banks. The study recommended strengthening borrower profiling, diversifying loan portfolio, enhancing loan monitoring, adopting digital credit assessment tools, leveraging credit guarantee services, and implementing the global standing instruction initiative to mitigate loan defaults.