Financial Sector Crisis in Ghana: a Study of the Underlying Causes

Abstract

ABSTRACT Causes of financial crisis have been widely explored. Some of the studies looked at credit risk, financial distress and corporate governance against financial crisis, but as separate entities. Thus, this study sought to analyse the underlying causes of financial crisis in Ghana. The sequential explanatory mixed methods design was employed to ensure triangulation of findings. Using the criterion sampling technique, 22 out of 23 commercial banks in Ghana made up the sample size for the study. The quantitative data were extracted from the banks‟ annual reports for the periods 2010 to 2019 whereas a semi-structured interview guide was used to collect qualitative data from managers of all the 23 banks. The quantitative data were analysed using the binary logistic regression estimated by the Maximum Likelihood Estimation (MLE) where normal distribution was assumed, whilst the thematic approach was used for the qualitative data analysis. Results revealed that credit risk, financial distress and corporate governance all have statistically significant effects on the odds of financial crisis occurring in Ghana. The qualitative finding also revealed political and social instability, governance issues, financial distress, credit problems, and supervision and regulatory issues to be the causes of financial crisis in Ghana. It was recommended that Board of Directors and Management of banks be put under constant surveillance to ensure that the banks‟ resources are not used for personal gains. Finally, suggestions were made for future studies