The effect of non-performing loan on the financial performance of commercial banks in ghana.
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Date
2023
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KNUST
Abstract
Non-performing loans (NPLs) is considered as financial pollution as a result of its high risk and effect on profitability and liquidity of banks. The study examines the effect of non-performing loan on the financial performance of commercial banks in Ghana. The study is guided by the following research objectives: examining the level of NPLs of commercial banks in Ghana, examining the relationship between loan to deposit ratio and profitability and determining the relationship between NPLs and financial performance of selected commercial banks. The data for this study was obtained from financial institutions from 2010 to 2021. The NPL rate shows some volatility but generally decreases from 2010 to 2014. It reaches its lowest point in 2014 at 11.3%. However, from 2015 to 2017, there is a notable increase in the NPL rate, with a peak of 21.59% in 2017. The findings shows that non-performing loans has a positive and significant relationship with ROA. The finding indicates that there is a positive and significant relationship between loan to deposit ratio. The study recommends the need to implement strong risk management practices to proactively identify and mitigate potential credit risks. This includes monitoring and early detection of deteriorating loan accounts, regular portfolio reviews, and stress testing. By identifying high-risk loans early, banks can take timely actions to mitigate potential losses and prevent loans from becoming non-performing. Also, management have to invest in training and development programs for loan officers and credit staff. Ensure they have the necessary skills and knowledge to assess creditworthiness accurately, detect warning signs, and handle loan monitoring and collections effectively.
Description
A thesis submitted to the institute of distance learning (idl), kwame nkrumah university of science and technology in partial fulfillment for the requirement for the award of degree of master of science in accounting and finance