Abstract:
Credit risk and liquidity risk management practices have become very critical for
efficient operations and survival of banks. This is because they have the tendency
to affect the core existence of banks (profitability). However, the impact of credit
risk and liquidity risk on the performance of banks is yet to be fully explored in
Ghana. The recent takeover of UT bank Ltd and Capital bank Ltd by GCB bank
Ltd; where issues of insolvency were cited by BoG as reason for the takeover is a
prove of credit risk and liquidity risk management challenges in Ghana. This
study investigated the effect of credit risk and liquidity risk on the performance of
listed banks in Ghana. The study used a quantitative research approach in the
analysis of the data. Annual secondary data from the financial statements of listed
banks were analysed for the period 2011 to 2014. A fixed effect model was used
in the analysis. The results showed that the capital adequacy ratio, cost per loan
assets ratio and loan advance total deposit ratio had significant negative effect on
listed banks’ liquidity risk. The results also showed that liquidity risk had
significant negative effect on the performance of listed banks but credit risk
generally had insignificant effect on listed banks’ performance. The study
recommends; management to be cautious in setting up a credit policy that will not
negatively affects liquidity risk and liquidity of listed banks. BoG for policy
purposes should regularly assess the lending attitudes of listed banks; one direct
way is to assess the degree of credit crunch by isolating the impact of supply side
of loan from the demand side taking into account the opinion of firms about listed
banks’ lending attitude.
