THE EFFECT OF NON-PERFORMING LOANS ON THE FINANCIAL PERFORMANCE OF SELECTED RURAL BANKS IN THE WESTERN AND ASHANTI REGIONS OF GHANA

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August, 2015
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Abstract
This study investigated the effect of non-performing loans on financial performance and trend of incidence of non-performing loans. Secondary data with reference period of 2004-2013 were collected from six selected rural Banks in both the Ashanti and Western Regions of Ghana between. The Ordinary Least Square Regression (OLS) was employed to estimate the effect of non-performing loans on financial performance. The polynomial function was employed to determine the trend of the incidence of non-performing loans. The results of the OLS revealed that non-performing loans, cost-income ratio, loan recovered and total revenue were all statistically significant at 1% significance levels respectively. The liquidity risk was not statistically significant. The non-performing loans and cost-income ratio had a negative influence on financial performance whereas total revenue and loan recovered had a positive effect on financial performance. The polynomial trend analysis revealed that non-performing loans in all the selected banks showed an increasing trend. The study therefore recommends that, the six rural banks should improve their credit management so as to avoid the fall in their profitability
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A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Finance Option)
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