The effect of credit risk on bank performance: a case of selected listed banks in ghana

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The study examines the effect of credit risk factors on financial performance. Selected listed banks in Ghana were chosen as the demographic for this research. Purposive sampling was used in this study to sample 9 listed banks in Ghana. Secondary data was gathered through annual reports submitted by companies for the period (2010-2021). A Pooled OLS and Random effect method of estimation were adopted to estimate the parameters involved in the study objectives. This finding supports the hypothesised negative relationship between nonperforming loans and financial performance. Due to the negative correlation between NPLs and financial performance, commercial banks would rather fund long-term investments with clean loans. According to the results, financial institutions prefer to invest retained earnings in the acquisition of new assets, and they want the total number of loans to be sizable and free of defects. The implications of this research for researchers, professionals, and policymakers are extensive. By conducting a thorough analysis of client data and information throughout the credit analysis process, bank management can reduce the possibility of information mismatch. Similarly, management should invest in robust credit information systems to eliminate knowledge gaps and enhance access to complete, accurate, and trustworthy borrower data. Moreover, bank management must employ efficient methods for managing the loans they currently hold. To ensure operational efficiency ratios and capital adequacy, however, authorities must closely monitor changes in cost-to-income ratios and the capital position of banks. In particular, regulators must create laws and tracking mechanisms that sound the alarm when the proportion of non-performing loans at a bank reaches an unsustainable level and the bank is likely to fail.
A thesis submitted to the institute of distance learning, kwame nkrumah university of science and technology in partial fulfilment of the requirement for the degree of master of science in accounting and finance