Credit Risk Management and Performance of Selected Commercial Banks in Ghana

Abstract

The study sought to determine the effect of credit risk management on financial performance of commercial banks listed on the Ghana Stock Exchange. It employed the quantitative research approach and explanatory design of which the targeted all commercial banks listed on the Ghana Stock Exchange (GSE) for the period 2014 – 2018. However, only 10 commercial banks with accurate information about their financial statements from 2014 to 2018 were considered in this study. The study employed the panel data analysis structured on the Ordinary Least Squares (OLS) regression method to examine the relationship between credit risk management and banks‘ performance. This was done with the aid of multiple regression technique of the Statistics and Data software (STATA version 14.0). Leverage Ratio (TDA) has negative relationship with the financial performance (ROA) of selected listed commercial banks in Ghana. Furthermore, Non-Performance Loan Ratio (NPLR) has negative relationship with the financial performance (ROA) of commercial banks. Therefore, the study recommended that the Bank of Ghana should encourage Commercial banks to reduce their lending rates prudently and other fees and commission charge or even try to waive some charges on banking services. Also, Commercial banks should boast the confidence of their customers to deposit more by keeping adequate liquidity, capital levels and quality assets on their books. Due to the negative relationship between Non-Performing Loans Ratio (NPLR) on performance, commercial banks should be critical in given out loans and how they are retrieved on time.