Financial Risk Management and Profitability of Commercial Banks in Ghana

Abstract

ABSTRACT This study examines the effect of financial risk management on the profitability of commercial banks in Ghana using a balance panel of twenty (20) commercial banks over ten time periods, spanning from 2011 to 2020 within a causal research design. The study considered net interest margin, credit risk, liquidity risk, operational risk, bank size and leverage as variables of interest. The study reveals that credit risk, liquidity risk and operational risk as the independent variable of interest and leverage as a control variable have negative and statistically significant effects on net interest margin. However, company size has positive and statistically significant effects on net interest margin. Therefore, the study recommends that Management of commercial banks must take proper steps in managing financial risk indicators in order to avoid it effects on their operations, sustenance, profits and growth due to the turbulent competition in the industry. Management of commercial banks should expand their size or operations to take advantage of economies of scale for the purpose of achieving high profits. Finally, Management of commercial banks should try to reduce leverage since it has a negative effect on profitability.