The impact of credit risk on profitability of some selected Banks in Ghana

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August, 2015
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The study attempts to reveal the relationship between credit risk and profitability of some selected banks in Ghana. A balanced panel data from seven selected banks covering the nine-year (2005-2013) was analyzed within the fixed and random effects techniques. Two key measures of profitability (dependent variables) employed in the study comprised of Return on asset (ROA) as model-1 and Return on Equity (ROE) as model -2. The credit risk measures used in the study included nonperforming loans to total loans, loan loss provisions ratio and loans and advances ratio. In addition, some internal and external determinants of profitability age were captured in model. The results showed that, nonperforming loans is negatively related to profitability while loan loss provision ratio and loan and advances ratio are positively significant to bank‟s profitability. Also the researcher discovered that both capital adequacy and age have a positive relationship with profitability while bank size has an inverse relationship. All the external factors were statistically insignificant. The study suggested the need for management of the banks to put in effective measures in improving the credit risk management strategies to enhance their profitability.
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)