A Retrospective Study of Non-Performing Loans of the Ghana Banking Sector between 1998 and 2019 (original) (raw)
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Determinants of Non-Performing Loans in Ghana: The Case of Listed Banks on the Ghana Stock Exchange
Daniel Amoah, 2021
The research seeks to assess the determinants of NPLs of listed banks in Ghana. The study used descriptive research design. Secondary data were collected from seven banks during the periods of 2010 to 2020. The results showed that there was a downward trend for the movement of NPLs from the periods of 2010 to 2019, before it began to rise in the year 2020. There was an up and down movement in the profitability of the banks. The highest profitability was recorded in the year 2019. Loan to deposit ratio (LTD), capital adequacy ratio (CAR), profitability, and bank size were the factors related to the bank that revealed negative and significant impact on NPLs. The lending rate (LR) had a positive but not significant impact on NPLs. For the macro-economic indicators, money supply (M2) and gross domestic product (GDP) showed a negative and significant impact on NPLs. Inflation had a positive but insignificant impact on NPLs. The study concluded that for the banks to decrease their exposure to NPLs there in the need to increase their CAR, LTD, return on equity (ROE) and bank size (BS). Also, there was the need to increase macroeconomic determinants; GDP, and M2 to reduce the NPLs of the banks. The study recommended that banks should mobilize more deposits to improve their CAR and minimize the deposits issued as loans. Also, central banks together with the Government must develop strategies in controlling the macroeconomic indicators such as money supply and inflation so an to minimize NPLs.
2022
The primary purpose of this research is to examine the effect of Non-Performing Loans (NPLs) on the profitability of universal banks in Ghana. The study is focused on the effect of non-performing loans on return on assets and return on equity of universal banks in Ghana. The study uses quarterly time series data collected by Bank of Ghana on all universal banks operating in the banking sector for the period 2007-2018. The multiple regression technique is used to analyse the models developed. The study reveals that non-performing loans have a significant negative effect on return on equity of universal banks in Ghana. The study also reveals a significant negative relationship between non-performing loans ratio and return on asset. The study recommends an improvement in the profitability of universal banks by reducing non-performing loans in individual banks. Universal banks must improve their loan monitoring strategies and manage their loan risk exposure to customers. The study recommends an improvement of the regulatory system of the central bank. Appropriate guidelines must be instituted by the central bank to prevent universal banks from advancing loans to customers with high credit risk.
Determinants of Non-Performing Loan: Empirical Evidence from Commercial Banks in Ethiopia
Madda Walabu University, 2024
ABSTRACTS Non-performing loans (NPLs) reflect the level of a bank's credit portfolio quality and the overall well-being of the banking sector. High NPL levels pose risks to banks, probably resulting in restricted financial activities, reduced investments, and slower economic growth. With this in mind, this research attempts to identify the variables that affect non-performing loans in Ethiopia's commercial banks from 2014 to 2023 G.C. To achieve this objective, a quantitative approach with an explanatory research design is utilized, based on secondary data. The researcher employed a purposive sampling technique and used panel data from seventeen sampled commercial banks. Econometric software (E-Views 12) was applied to the data analysis. Multiple linear regression and t-statistics were employed to assess the relative importance of each independent variable in affecting commercial banks NPLs. Descriptive statistics, explanatory statistics, multiple linear regression analysis and a correlation matrix were utilized to analyze the general trends of the data. The ordinary least squares method was utilized to estimate the models’ regression coefficients. The study consider non-performing loan as the dependent variable, and Total Provision to Loan and Advance, Liquid Asset-to-Total Asset, Capital-to Total-Asset, Earning Ability, Loan-to-Deposit Ratio, Return on Asset, Bank Size, Lending Interest Rate, Foreign Exchange Rate and Gross Domestic Product as independent variables. The result of this research shows that TPLA, LATA, LDR, LIR and GDP have a positive significant effect on NPLs. However, other variables like EA, CTA, ROA, BS and FEXR have a negative significant effect on NPLs of ECB’s. The researcher suggested that it is better for Ethiopia’s commercial banks to strive to focus on enhancing their credit risk management practices, which involve enhancing loan underwriting, conducting comprehensive credit assessments, and implementing effective monitoring and early warning systems. It is also advisable for banks to closely follow macroeconomic trends and make necessary adjustments to their lending practices, especially during times of economic growth. Additionally, the researcher advised ECB’s to focus on both bank-specific and macroeconomic factors to enhance their asset quality, with a particular emphasis on reducing nonperforming loans (NPLs). Keywords: Non-performing loans; Total Provision to Loan and Advance; Liquid Asset-to-Total Asset; Capital to Total Asset; and Earning Ability;
Macroeconomic and bank-specific determinants of non-performing loans in sub-Saharan Africa
2019
This paper investigates the macroeconomic and bank-specific determinants of non-performing loans (NPLs) in eight sub-Saharan African economies. The study is motivated by the fact that some of these economies have experienced banking crises in the past, their NPLs have relatively been rising post the 2008/2009 global financial crisis and have recently experienced rapid growth of bank credit to the private sector. Such issues pose credit risks in the banking sector. Employing dynamic panel data methods over the period 2000-2017 and using a variety of specifications, the results show that NPLs decrease when real GDP growth rate, return on equity, return on assets, and bank size increase and rises when public debt, inflation rate, broad money, and domestic credit to private sector by banks increase.
Determinants of nonperforming loans: Empirical study in case of commercial banks in Ethiopia
2014
As noted by Sharon (2007), loans have a vital contribution towards development of economy. However, its nonpayment also leads to incidence of huge loss on banks in particular and country in general. Hence, this study was conducted to examine both bank specific (loan to deposit ratio, capital adequacy ratio, return on asset and return on equity) and macroeconomic (lending rate, inflation and effective tax rate) determinants of NPLs of commercial banks in Ethiopia. To this end, the researcher has selected eight senior commercial banks in Ethiopia judgmentally. This study used secondary sources of data, which is panel data in nature, over the period 2002-2013 These data were collected from NBE and CSA. Furthermore, fixed effect model was used to examine the determinants of NPLs. This research is an explanatory research design that identifies the cause and effect relationships between the NPLs and its determinants. The study shows a down ward sloping of nonperforming loans for commercial banks in Ethiopia. The finding also revealed as LTD ratio had positive whereas INFR had negative, but insignificant effect on NPLs of commercial banks in Ethiopia. However, bank profitability measured in terms of ROE, banks capital adequacy ratio and lending rate had negative and statistically significant effect whereas bank profitability measured in terms of ROA and effective tax rate had positive and statistically significant effect on NPLs of commercial banks in Ethiopia. The finding of this study is significant since once identifying the determinants of NPLs might enable management body to make appropriate lending policies that prevent the occurrence of NPLs. Furthermore, the study recommended as bank managers should emphasize the management of current assets and loans than fixed assets in order to reduce the level of nonperforming loans. Besides, it is better for the loan officers to provide financial counseling to the borrowers on the wise use of loan and also to make decision on timely fashion to meet their need.
Effect of Non-Performing Loans on the Financial Performance of Commercial Banks in Nigeria
American International Journal of Business and Management Studies, 2019
The study examined the effect of Non-Performing Loans on the financial performance of commercial banks in Nigeria between the periods of 1985 to 2016. The study employed the multiple regression techniques to analyze data collated from the Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Deposit Insurance Corporation (NDIC) publications for various years. The result of the study shows that Non-Performing Loans to Total Loans ratio (NPL/TLR) and Cash Reserve Ratio (CRR) had statistically negative significant effect on Return on Asset (ROA). These result shows that a high level of non-performing loans would reduce the financial performance of commercial banks in Nigeria. Consequently, the study recommends that the regulatory authorities in Nigeria should create and support an environment where commercial banks in Nigeria can have a strong risk management practices.
BANK CAPITAL, NON-PERFORMING LOANS AND BANK FAILURE IN GHANA.
GYESI_ BILLS
In primitive to today’s society the banking industry is seen as an imperative area in the service sector of an economy. The continued and sustained growth of any economy is dependent on a strong and robust financial sector. The Bank of Ghana in a bid to reform and ensure stability plays a crucial role in safeguarding the stability of the banking sector by monitoring bank capital, addressing NPLs, and taking necessary actions to prevent bank failures. This study aims at evaluating the various factors that trigger the stability and health of Ghana. In Ghana, like in any other country, bank capital, non-performing loans (NPLs), and bank failure are interrelated factors that impact the stability of the banking sector The study gathered qualitative data through interviews and quantitative data from annual reports of the Bank of Ghana to found out that over ambitious expansion drive, investment in none core banking actives such as media, financial misreporting and the institutionalization of business promotion as prime causes of bank failures in Ghana between 2016 and 2018. Based on the findings, the study recommended that Bank of Ghana should be more proactive in dealing with failed banks and should also involve the Ghana Association of Bankers in a peer mechanism to correct the imbalances in the banking sector. For the universal banks, they should not give interest rates that they cannot sustain and invest only in other business that they have expertise. Further research should be conducted in order to check and generalize the findings of the study.
Determinants of Non-Performing Loans: The Case of the Ethiopian Commercial Banks
2015
Loans and advances form a greater portion of the total assets in banks. These assets generate huge interest income for banks which to a large extent determine the financial performance of banks. However, some of these loans usually fall into non-performing status and adversely affect the performance of banks. In view of the critical role banks play in an economy, it is essential to identify problems that affect the performance of these institutions. Non-performing loans is one of these problems. Therefore, a research on determinants of non-performing loans, the case of Ethiopian Commercial banks was conducted on twelve banks. The research seeks to find out the determinants of non-performing loans in the Ethiopian commercial banks. Structured questionnaire was used to collect data for the study from both private and state-owned banks. The study found that poor credit analysis and unsound lending practices, lack of focused loan monitoring and follow-up, lenient credit terms and condit...