The Impact of Credit Risk on the Performance of Banks in Ghana (original) (raw)
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Re-Examining the Impact of Credit Risk on Profitability of Banks:Panel Evidence from Ghana
European Journal of Business and Management, 2019
Credit risk management has become an instrument for the survival and growth of financial institutions. The major cause of banking problems has been identified as ineffective credit risk management. The Ghanaian banking sector is currently undergoing significant reforms which have led to some banks being collapse whiles others consolidated. This study seeks to reexamine the impact of credit risk on the profitability of Banks in Ghana. Panel data covering the period of 2010-2015 was gathered from 20 banks. Three determinants of credit risk were selected. These are asset quality, non-performing loan, and liquidity. Return on Asset (ROA) was employed as a measure of profitability. We found that that while the relationship between asset quality, non-performing loan and profitability were statistically significant, the relationship between liquidity ratio and banks' profitability was found to be insignificant. This shows that banks with huge non-performing loans are less profitable and prone to a high rate solvency rate. Based on the result of the study, it is recommended that banks should adopt and implement effective credit risk management strategies as it will enhance their profitability.
Credit Risk and Profitability of Selected Banks in Ghana
Research Journal of Finance and …, 2012
This study attempts to reveal the relationship between credit risk and profitability of some selected banks in Ghana. A panel data from six selected commercial banks covering the five-year period (2005)(2006)(2007)(2008)(2009)) was analyzed within the fixed effects framework. In Ghana, the average lending/interest rate is about 30% -35% per annum. From the results credit risk (non-performing loan rate, net charge-off rate, and the pre-provision profit as a percentage of net total loans and advances) has a positive and significant relationship with bank profitability. This indicates that banks in Ghana enjoy high profitability in spite of high credit risk, contrary to the normal view held in previous studies that credit risk indicators are negatively related to profitability. Our results can be attributed to the prohibitive lending/interest rates, fees and commission (non-interest income) charged. Also, we found support for previous empirical works which depicted that bank size, bank growth and bank debt capital influence bank profitability positively and significantly.
6 Credit Risk and Profitability of Selected Banks in Ghana
2016
This study attempts to reveal the relationship between credit risk and profitability of some selected banks in Ghana. A panel data from six selected commercial banks covering the five-year period (2005-2009) was analyzed within the fixed effects framework. In Ghana, the average lending/interest rate is about 30 %- 35% per annum. From the results credit risk (non-performing loan rate, net charge-off rate, and the pre-provision profit as a percentage of net total loans and advances) has a positive and significant relationship with bank profitability. This indicates that banks in Ghana enjoy high profitability in spite of high credit risk, contrary to the normal view held in previous studies that credit risk indicators are negatively related to profitability. Our results can be attributed to the prohibitive lending/interest rates, fees and commission (non- interest income) charged. Also, we found support for previous empirical works which depicted that bank size, bank growth and bank d...
Credit Risk and Bank Profitability of Commercial Banks in Ghana
EPRA International Journal of Research & Development (IJRD), 2019
This study attempted to explore the connection between credit risk management and the profitability of the Ghana Stock Exchange (GSE) listed commercial banks. The study specifically sought to examine the relationship between credit risk and the profitability of the firms as measured by ROA. The study adopted these variables to measure credit risk (non-performing loan ratio, cost per loan asset, capital reserved 0.1ratio and asset growth ratio) and return on asset (ROA) as a profitability estimator. Following some diagnostic and specification studies to address the fundamental assumptions of the Classical Linear Regression Model (CLRM). The study uncovered that NPLR had a significantly negative effect on the firms’ profitability as measured by ROA [β=-0.1671, (p=0.1360)>0.05]. Also, the cost per loan asset (CPLA) had a positive influence on the firms’ profitability as measured by ROA [β= 0.0249, (p=0.8252)>0.05]. For the other variables of credit risk measurements, capital rese...
Credit Risk Management and Financial Performance of Listed Banks in Ghana
2020
The purpose of this study was to examine the effect of credit risk management on the performance of selected listed commercial banks in Ghana. The study used secondary data collected from seven (7) banks listed on the Ghana Stock Exchange for a period of ten (10) years covering 2007-2016 with a total of seventy (70) observations. The credit risk management variables (independent variables) used were non-performing loans, loan loss provision, capital adequacy, with bank size (as controlling variable) whiles the financial performance of commercial banks (as dependent variable) was measured using return on asset. The data was examined using standard descriptive statistics and fixed effect model for hypothesis testing. Based on the test conducted on the data collected and the analyses of the results, this study found a significant relationship between the credit risk management variables (NPL, CAR and SIZE) and the profitability of listed banks in Ghana. In general, banks need to maintain an optimum level of CAR as per regulatory requirement so that they will not have difficulty in meeting their financial obligations, be able to absorb any financial shocks that may arise, protect their depositors' investment and thus promotes the stability of the financial system. The study further recommends for banks in Ghana to control and monitor NPL, and keep the level of NPL as low as possible by emphasizing more on the ability of customers to pay back before credit approvals are given, a practice that will enable banks to achieve higher performance.
The International Journal of Business & Management, 2020
The introduction of Basel II has increased the importance of credit risk management. Financial crisis is also a reason for this. Credit grant is a major source of earning for banks and financial institution. How credit risk management has made effect on financial performance or profitability for some selected commercial banks in Ghana is the main objective. The time period is of seven years (2011-2017). Two model specifications have been adopted to assess this relationship. The dependent variables are: two major measures of profitability (ROE and ROA). The credit risk measures adopted in the study included capital adequacy ratio, non-performing loans to total loans, loan loss provisions ratio and loans to deposit ratio.
The Link between Credit Risk and Profitability of Universal Banks in Ghana
Divine Atinyo, 2021
Credit risk has been cited by scholars and reputable credit rating organisations as one of the major contributory factors to financial crisis-especially, within the banking sector-due to its pronounced effect on firms' profitability. Nevertheless, stakeholders within Ghana's financial sector seemed to lose grip of the relationship between credit risk and profitability; possibly due to paucity of empirical literature in this area. Thus, this study assessed the relationship between credit risk and profitability of universal banks in Ghana, employing annual data for the period 2011-2020 from 22 universal banks selected using the criterion sampling technique. The Ordinary Least Squares (OLS) was used for estimation of the relationship between credit risk and profitability. Credit risk was proxied by nonperforming loans to loans and advances (NP/LA), loans and advances to total deposits (LA/TD) and provision for loan loss to net loans (PLL/NL), whilst profitability was measured by return on assets (ROA). Results revealed NP/LA and LA/TD to have significantly positive effects on ROA, whilst PLL/NL was negatively associated with ROA. Overall, the findings pointed out that credit risk influences firm profitability, and thus, management of universal banks in Ghana are required to take pragmatic steps towards minimising the threats posed by credit risk.
Journal of Risk and Financial Management
The financial sector is an integral part of the economy, playing a vital role in the overall economic development of a nation, but commercial banks in this sector face a myriad of risks. This has made understanding the impact of risk management on bank performance crucial. This study sought to examine the effect of risk management on the performance of commercial banks in Ghana. The study used a quantitative research approach, relying on secondary data from the yearly financial statements of the selected banks. Seven commercial banks were purposively sampled. According to the 2017 Ghana Banking Survey, the seven commercial banks selected represent more than 50 percent of Ghana’s financial market by proportion of industrial deposits, which was a criteria for selecting the seven banks. The results of the study showed that of the four types of risks examined vis-à-vis credit risk, operational risk, liquidity risk, and market risk, only operational risk was found to exert a significant ...
The effect of credit risk on financial performance of commercial banks in Ethiopia
2018
This study attempts to reveal the relationship between credit risk and financial performance of commercial banks in Ethiopia. In order to investigate these study quantitative research approach is employed based on documentary analysis. A panel data from six selected commercial banks covering the ten-year period (2007-2016) is analyzed within the fixed effects model on regression analysis and using E-view8 software. The study used one dependent variable return on asset (ROA), four independent variables that are: nonperforming loan to total loan and advance ratio (NPLTLA), loan provision to total loan and advance ratio (LPTLA), total loan and advance to total deposit ratio (TLATD) and the ratio of non-performing loan to loan provision (NPLLP) as measures of credit risk. Both descriptive statistics and regression analysis specifically fixed effects model were used to analyze the relationships of the depended variable with explanatory variables. The regression result show that non-perfo...
Determinants of Credit Risk in the Banking Industry of Ghana
Developing Country Studies, 2013
This paper examines bank-specific, industry-specific and macroeconomic factors that influence credit risk (CR) in commercial banks in Ghana using unbalanced panel data set from 33 commercial banks covering the 21-year period 1990 to 2010. The study employed annual time series data from 1990 to 2010. The paper is the first of its kind in Ghana, a developing country with emphasis on macroeconomic tools relied on by the central bank for creating a stable macroeconomic environment. Results suggest that credit risk in Ghana is significantly influenced by management efficiency, GDPPC, Government borrowing and the financial sector development. Government borrowing and financial sector development have a negative relationship with credit risk while management inefficiency and GDPPC have a positive relationship.