Non-Performing Loans and Profitability of Commercial Banks in Ghana: A Study of Adb Bank – Nkwanta South

Abstract

The thrust of this dissertation was to evaluate the causes and effect of non-performing loans (NPLs) on the profitability of commercial banks in Ghana focusing on ADB Bank. Primary data was elicited using a structured interview questionnaire through direct. Secondary data was used to estimate the econometric model and variables adopted were; inflation, Gross Domestic Product (GDP), Return on Equity (ROE), lending rate and NPLs. Findings of the study revealed that, lending rate and economic growth (GDP) impacts positively on the profitability of ADB Bank while inflation rate and non-performing loans (NPLs) impacts negatively on profitability of ADB Bank. The study further found that, factors such as higher interest rate in ADB, late disbursement of loans, unfavourable loan sizes, lack of training for clients and after disbursement, poor appraisal, lack of proper monitoring, business failure, unforeseen contingencies, diversion of funds on the part of clients and unwillingness to clients to pay loans. Based on these findings, the study recommends that strong group should be encouraged should be encouraged by the ADB Bank to minimise loan default. Also, monetary and fiscal policy institutions in Ghana especially Bank of Ghana through its Monetary policy committee should adopt proactive and effective measures to tackle inflation in the country. The study further recommends that future studies be conducted into non-performing loans and profitability of commercial banks using cross-sectional data either within the country or the sub-region of West Africa.