Determinants of Non-performing Loans in Ghana - a Case of Some Banks Listed on Ghana Stock Exchange

Abstract

The research seeks to assess the determinants of NPLs of listed banks in Ghana. The study used descriptive research design. Secondary data were collected from seven banks during the periods of 2010 to 2020. The results showed that there was a downward trend for the movement of NPLs from the periods of 2010 to 2019, before it began to rise in the year of 2020. There was up and down movement in the profitability of the banks. The highest profitability was recorded in the year 2019. Loan to deposit ratio (LTD), capital adequacy ratio (CAR), profitability, and bank size were the factors related to the bank that revealed negative and significant impact on NPLs. Lending rate showed a positive but not significant impact on NPLs. For the macro-economic indicators, money supply (M2) and gross domestic product (GDP) showed negative and significant impact on NPLs. Inflation had positive but insignificantly impacted on NPLs. The study concluded that for the banks to decrease their exposure to NPLs there in the need to increase their CAR, LTD, return on equity (ROE) and bank size (BS). Also, there was the need to increase macroeconomic determinants; GDP, and M2 so as to reduce the NPLs of the banks. The study recommended that banks should mobilize more deposits so as to improve their CAR and also minimize the deposits issued as loans. Also, central bank together with the Government have to develop strategies in controlling the macroeconomic indicators such us money supply and inflation so an to minimize NPLs.