Macroeconomic and bank level determinants of non performing loans in Ghana

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Non-performing loans in many developing and emerging economies have recently become a subject of concern especially in Ghana. Non-performing loans are loans that have past due for a period of 90 days without the borrower making any effort for repayment. Npls began at the early stage of financial liberation. Npls which were a canker in the financial intermediation process could not be curtailed through privatization and liberalisation during 1980s and 1990s. However, there are a number of factors responsible for npls in Ghanaian banking sector. These factors can be classified as macroeconomic factors such as inflation, GDP per capital, lending rate, public debt, unemployment, etc. And bank level factors like liquidity, net interest margin, return on asset, bank size, and management efficiency etc. Unfortunately, unlike the banking sector of the developed and emerging economies, Ghana banking sector has experienced an increase in non-performing loans which has therefore, contributes to the collapse of many banks and have consequently received little attention by researchers. This study therefore seeks to examine the macroeconomic and bank level determinants of npls in Ghana. The study employed panel regression method to accomplish its objectives where the random effect estimation was appropriate after the Hausman test. Using macroeconomic and bank level data obtained from WDI and annual financial statements of various commercial banks from a period 2008-2018, it was found that both macroeconomic variables (i.e. Public debt, inflation, real interest rate, and GDP per capital) and bank level variables (i.e. Net interest margin, bank size, liquidity, management efficiency, and return on asset). However, unemployment, net interest margin, and ROA are not important in explaining non performing loans. Finally, the sub-sample results conclude that macroeconomic and bank level determinants significantly affects non-performing loans of local banks more than foreign banks.
A thesis submitted in partial fulfilment of the requirement for the award of a master of science degree (finance)