Macroeconomic and bank-specific factors as leading indicators of non-performing loans in the banking sector of ghana

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The concept of NPL is on ascendancy as a result of its strategic implication on the banking sector and the economy in general. A country like Ghana has been plagued by a key problem, that is, access to loanable funds as a result of rising non-performing loans. The main objective of this study was to analyze bank-specific and macro-economic determinants of npls in Ghana. To achieve this purpose of the study, a sample of 11 banks in Ghana with data spanning from 2015 to 2021 were utilized for the study. The secondary data were sourced from both the audited financial statement and the World Development Indicators (WDI). Macro-economic variables of the study include inflation rate, exchange rate, GDP, and interest rate for the study. To achieve the study objectives, the study conducts descriptive statistics and regression analysis in respect to each objective. The study also carries out the LM-test, F-test and Hausman tests to determine the appropriate model for this study and finds that the fixed-effect model was appropriate for this study. Based on the results, the study found that inflation rate has negative but insignificant impact on npls. It was also revealed that NIM has a positive and significant impact on npls. ROA on the other hand revealed a significant negative impact on npls. Bank size also indicated a significant positive impact on npls. The model also revealed that firm age has a positive but insignificant impact on npls. Based on the findings, this study recommends to management to devise stringent mechanisms and tight credit recovery mechanisms to reduce the incidence of npls in the country. Credit officers should also assess the credibility of borrowers before granting loans and other credit facilities to them. Based on this finding, the study also recommends to government and policy makers to control inflation rate and exchange rate volatility against the major currency to help stabilize the Ghanaian economy.
A thesis submitted to the department of accounting and finance, school of business, Kwame Nkrumah university of science and technology, in partial fulfillment of the requirements for the award of the degree of master of business administration (finance)