Effect of credit risk management on the performance of listed banks in Ghana

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The objective of this research is to examine the effect of credit management and non performing loans on the performance of listed banks in Ghana, in the presence of the financial sector clean-up leading to some capitalization constraints imposed on banks within a framework that is dynamic. The GMM estimation technique was used in this research. The researcher adopted the quantitative research method with explanatory research design approach for its suitability in cause and effect relationships. 7 listed banks in Ghana were sampled and secondary data obtained for the variables of interest – CRM (npls, LDR, and EAR) and financial performance variables (ROA and ROE). The results of the study show a significant negative relationship between npls and ROE. Also, LDR positively influences the profitability of listed banks in Ghana but positive insignificant relationship was found between EAR and both ROA and ROE. Besides, financial sector clean-up was found to be directly and significantly related to bank profitability. Finally, bank growth was found to be a significant predictor of bank profitability, proxied by ROA and ROE, however, bank age proved to be inversely related to the profitability of listed banks in Ghana. Leverage was found to have mixed relationships with bank profitability. The study concludes that uncontrolled levels of credit risk, particularly npls, would lead listed banks into financial difficulties which would further result in poor profitability or financial performance in the long term. A major recommendation was for levels of npls to be regularly monitored and kept under control so as for listed banks to manage risks efficiently
A thesis submitted to the Kwame Nkrumah university of science and technology, college of humanities and social science, kunst school of business in partial fulfillment of the requirements for the award of master of business administration (accounting)