Defined Contribution Scheme and Non-Performing Loans in Nigeria

Non-performing loans (NPLs) has been observed to have the capacity to decrease liquidity. 
However, the defined contribution scheme is replete with liquidity enhancing benefits. In view of 
this, this study investigated the feasibility of the defined contribution scheme (DCs) to minimizing 
NPLs and expanding credit supply (proxied by credit to private sector (CPS)) in Nigeria. Using 
the Autoregression Distributed Lag technique, the study analyzed annual time series spanning 
1981 to 2023 from the Central Bank of Nigeria (2024) and the World Development Indicators 
(2025). The study found that defined DCs positively affect NPLs and negatively affect CPS in 
Nigeria. Furthermore, the findings indicated that regulatory quality (0.27%) in the previous year, 
liquidity ratio (0.123%) reduces NPLs in Nigeria. The result reveals that one unit increase in the 
previous level of control of corruption (0.48%) and regulatory quality (0.027%) will increase the 
current level of CPS in Nigeria in the long run. In the short run, the control of corruption (0.24%) 
will increase credit supply in Nigeria. Control of corruption (0.16%) and the previous level of 
interest rate spread (1.28%) negatively influence NPLs in the short-run. The study concludes that 
NPLs minimization and credit supply depends significantly on institutions and regulatory policies 
in Nigeria. The study recommended capacity building in financial policy formulation and 
implementation and transparency for NPLs minimization and credit supply expansion