##plugins.themes.bootstrap3.article.main##

The economic development of any nation hinges on the health of its financial system. In recent years, the health of the Ghanaian Banking sector has been affected severely as a result of high levels of non-performing loans (NPLs), which has been identified as a major threat to the overall profitability and survival of banks. To minimize the impact of NPLs on the financial sector, key stakeholders such as the government, bank officials and regulators are working hard in that regard. However, any policy response aimed at dealing with the high rate of non-performing loans first requires the understanding of the underlying determinants of NPLs. Against this backdrop, this paper apply panel co-integration techniques to investigate the determinants of credit risk (NPLs) in the banking sector of Ghana.  We use NPL as a proxy to measure credit risk and assess how it is influenced by macroeconomic and bank-specific factors. A balanced panel data of 16 universal banks in Ghana from 2010 to 2016 has been analyzed using Panel co-integration techniques such as Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS). Our result shows that growth in the economy, measured by Gross Domestic Product (GDP) has significant influence on the NPLs of banks in the long-run. The results further revealed that capital adequacy, profitability and liquidity of banks are significant predictors of NPLs. However, our results suggest that bank size, inflation and interest rate have statistically insignificant influence on the NPLs of Ghanaian banks. The study recommend, among others, that whereas it is important for government and policymakers to work to improve macroeconomic outcomes, banks should also improve their capital adequacy, profitability, and efficiency position as these bank-specific interventions could significantly improve credit quality and minimize NPLs.

Downloads

Download data is not yet available.

References

  1. B. S Bernanke: The financial accelerator and the credit channel Remarks by Mr Ben S Bernanke, Chairman of the Board of Governors of the US.
     Google Scholar
  2. P. Jorion, Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc. 2009
     Google Scholar
  3. Basel Committee on Banking Supervision. (2001). Risk management practices and regulatory capital: Cross-sectorial comparison. Switzerland: Bank for International Settlements.
     Google Scholar
  4. P. P. Athanasoglou, S.N. Brissimis, and M.D. Delis, “Bank-specific, industry-specific and macroeconomic determinants of bank profitability,” Journal of International Financial Markets, Institutions and Money, Vol.18, No. 2, pp. 121–136, 2008.
     Google Scholar
  5. Pricewaterhouse coopers (2014), Ghana Banking survey, 2014.
     Google Scholar
  6. V. G. Hennie, “Analyzing and Managing Banking Risk: A Framework for Assessing Publications (2003).
     Google Scholar
  7. D. K. Gar, “Determinants of credit risk in the Banking industry of Ghana, Developing country studies,” Vol 3 No. 11, pp. 64-77, 2013.
     Google Scholar
  8. A. Katchova, “Panel Data Models, Econometrics , retrieved from Academy,https://sites.google.com/site/econometricsacademy/home/about-the-instructor, 2013.
     Google Scholar
  9. P. C. B. Phillips and B. E. Hansen, Statistical Inference in instrumental variables resgression with I(1) Process. The review of Economic studies, vol. 57, No. 1, pp. 99-125, January, 1990.
     Google Scholar
  10. B. Bernanke, M. Gertler, and S. Gilchrist, The financial accelerator in aquantitative business cycle framework. In: Taylor, J.B., Woodford, M. (Eds.), Handbook of Macroeconomics. Elsevier, Amsterdam. 1999.
     Google Scholar
  11. B. Bernanke, M. Gertler, “Agency costs, net worth, and business fluctuations,” Am. Econ. Rev. Vol. 79, pp. 14–31. 1989.
     Google Scholar
  12. R. Beck, P. Jakubik, and A Piloiu, “Key determinants of non-performing loans: new evidence from a global sample” Open Econ. Rev. Vol. 26, No. 3, pp. 525–550, 2015.
     Google Scholar
  13. E. Nikolaidou, S. Vogiazas, “Credit risk determinants in Sub-Saharanbanking systems: evidence from five countries and lessons learnt from Cen-tral East and South East European countries”. Rev. Dev. Finance 7, 52–63. 2017.
     Google Scholar
  14. A. Pruteanu-Podpiera, A., Weill, L. & Schobert, F. Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry. Comp Econ Stud 50, 253–273 (2008). https://doi.org/10.1057/palgrave.ces.8100248.
     Google Scholar
  15. A. Ali, K. Daly, “Macroeconomic Determinants of credit risk : Recent evidence from a cross country study” International review of financial analysis, Vol. 19, No. 3, pp. 165-171, 2010.
     Google Scholar
  16. T. R. Mpofu and E. Nikolaidou, “Determinants of Credit Risk in the Banking system in Sub-Saharan Africa," School of Economics Macroeconomic Discussion Paper Series 2018-04, School of Economics, University of Cape Town. 2018.
     Google Scholar
  17. N. Haniifah, “Economic determinants of non-performing loans in Ugandan commercial bank.” Taylor’s Bus. Rev. J. Vo. 5, No. 2), 137–153, 2015.
     Google Scholar
  18. L. Etale, P.E Ayunku, E. Etale, “The impact of non-performing loans andbank performance in Nigeria”. Int. J. Humanit. Soc. Sci. Invent. 5 (4), 1–5. 2016.
     Google Scholar
  19. R. De Bock, R., A. Demyanets, “Bank Asset Quality in Emerging Markets: Determinants and Spillover,” IMF Working Paper 12/71. 2012.
     Google Scholar
  20. V. Castro, “Macroeconomic determinants of the credit risk in the banking system: the case of the GIPS,” Econ. Model. Vol. 31, P. 672–683, 2013.
     Google Scholar
  21. BOG, 2015, annual reports publications, 2015.
     Google Scholar
  22. Communications Department (14 August 2017). "Gcb Bank Ltd Takes Over Ut Bank Ltd And Capital Bank Ltd" (PDF). bog.gov.gh. Bank of Ghana. Retrieved 23 February 2020.
     Google Scholar
  23. D. Asteriou, and S.G. Hall, “Applied econometrics.” New York, NY: Palgrave Macmillan. (2011).
     Google Scholar
  24. C. F. Mela, and P.K. Kopalle, “The impact of collinearity on regression analysis: the asymmetric effect of negative and positive correlations,” Applied Economics, Vol 34. pp. 667-677, 2002.
     Google Scholar
  25. P. E. Green, J. D. Carroll, and W.S DeSarbo, "A New Measure of Predictor Variable Importance in Multiple Regression," Journal of Marketing Research, Vol. 3 pp. 356-60, 1978.
     Google Scholar
  26. D. R. Lehmann, “Market Research and Analysis”, Homewood, IL: Richard D. Irwin. 1989).
     Google Scholar
  27. A. Levin, C.F. Lin, and C. Chu, “Unit root tests in panel data: asymptotic and finite sample properties,” Journal of Econometrics, vol. 108, pp. 1–24, 2002.
     Google Scholar
  28. J. Breitung, “The local power of some unit root tests for panel data,” Advances in Econometrics, vol. 15, pp.161–177, 2000.
     Google Scholar
  29. M. H. Pesaran, Y. Shin, “Impulse Response Analysis in Linear Multivariate Models,” Economics Letters, Vol. 58, pp.17-29, 1998.
     Google Scholar
  30. P. Pedroni, “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,” Oxford Bulletin of Economics and Statistics, Vol.61, pp.653-70, 1999.
     Google Scholar
  31. C. Kao, “Spurious regression and residual-based tests for cointegration in panel data, Journal of Econometrics”, 90, pp.1-44, 1999.
     Google Scholar
  32. A. Poudel and M Ravi (2013) “Macroeconomic Determinants of Credit Risk in Nepalese Banking Industry,” Proceedings of 21st International Business Research Conference 10 - 11 June, 2013, Ryerson University, Toronto, Canada.
     Google Scholar
  33. A. N. Berger, and R. DeYoung, “Problem Loans and Cost Efficiency in Commercial Banks”, Journal of Banking and Finance, Vol. 21, pp. 849-870, 1997.
     Google Scholar
  34. S. walid, Z. Khrawish, Husni & A. A. Ali, “The utilizing of financial analysis in rationalizing decision of granting credit facilities.” International Research Journal of Finance and Economics, Vol. 69, No. 11, 2011.
     Google Scholar
  35. S. F de Lis, J. M. Pagés and J. Saurina, “Credit Growth, Problem Loans and Credit Risk Provisioning in Spain”, No 0018, Working Papers, Banco de España, 2000.
     Google Scholar
  36. T.A Tehulu, D.R. Olana, “Bank-Specific Determinants of credit risk: Evidence from Ethiopian banks”, Research Journal of Finance and Accounting, Vol. 5, No. 7, pp. 80-86.
     Google Scholar
  37. M. Quagliariello, “Banks' Riskiness over the Business Cycle: A Panel Analysis on Italian Intermediaries”, Applied Financial Economics. Vol. 2, No. 17, pp. 119-138., 2007.
     Google Scholar