The effects of macroeconomic factors on credit risk: evidence from commercial banks in Ghana

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The banking industry is recognized as being crucial to the growth an economy. This industry nevertheless, is susceptible to macroeconomic uncertainty, which raises the credit risk for commercial banks. The research main aim is to examine the effects of macroeconomic variables on credit risk of banks in Ghana. The study design is quantitative in nature and employs the experimental research strategy to establish causality. The study makes use of secondary data sourced from Bank of Ghana and Ghana Statistical Services on macro specific data whiles firm specific data is sourced from the selected banks financial statements. A sample size of 17 universal banks out of a population of 23 was determined using the purposive sampling technique across a seven-year period from 2015 to 2021. The study is grounded on theories like the financial theory also known as financial instability hypothesis, agency theory and the theory of asymmetric information. The results of the study indicated that exchange rate, unemployment rate, GDP and monetary policy rate are inversely related to credit risk. Moreover, for inflation the association is negative with credit risk. The findings of the study points to the fact that macroeconomic factors have a strong ability to predict the probability of default. The study recommends that the Central Bank of Ghana should also take on a more regulatory and proactive role by ensuring that banks have adequate provisions for bad loans, likewise Ghanaian banks should set up a limited lending policy by raising the value and quantity of loan collateral.
A thesis submitted to the department of accounting and finance college of humanities and social sciences in partial fulfilment of the requirements for the degree of msc accounting and finance