The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana

Amos Ninson; Augustina Sidza; Dominic Ampah

doi:doi:10.11648/j.ijfbr.20210705.13

| Peer-Reviewed

The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana

Amos Ninson, Augustina Sidza, Dominic Ampah

Published in International Journal of Finance and Banking Research (Volume 7, Issue 5)

Received: 25 August 2021 Accepted: 24 September 2021 Published: 12 October 2021

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

The main purpose of the study was to examine the relationship among non-performing loans, Commercial Banks’ lending rate and financial performance of Commercial Banks in Ghana. The time series design was used along with the quantitative research approach. Secondary data on the selected variable and some control variables were accessed from the economic and monetary data base of the Central Bank of Ghana from 2006 to 2019 and used for the analysis. Both theoretical and empirical literature was reviewed to create a research gap for the study. Time series properties of the variables such stationarity and descriptive were done to assess the stability of the time series variables. The Augmented Dickey-Fuller unit-root test was used for the stationarity test since the time series plots indicated no possibility of serious structural breaks. Return on assets before tax, return on equity after tax, Commercial Banks interest rate, inflation and inter-banks interest rate were found to be significant determinants of Non-performing loans in the financial sector of Ghana. It was concluded that simultaneous relationships exist among the level of non-performing loans, Commercial Banks’ lending rate and financial performance of Banks in Ghana, hence anyone of them could serve as a lead variable or policy variable in ensuring a stable financial system in Ghana. It was recommended that the management of commercial banks must exploit other avenues of generating income such as direct project financing among others and reduce reliance on interest payment through increase in interest charges.

Published in	International Journal of Finance and Banking Research (Volume 7, Issue 5)
DOI	10.11648/j.ijfbr.20210705.13
Page(s)	123-132
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Commercial Bank, Lending, Loans

References

[1]	DesJardins, J. R., & DesJardins, J. R. (2009). An introduction to business ethics. New York: McGraw-Hill Higher Education.
[2]	Ennew, C., & Sekhon, H. (2007). Measuring trust in financial services: The trust index. Consumer Policy Review, 17 (2), 62.
[3]	Cesaroni, T., De Bonis, R., & Infante, L. (2018). Firms’ financial surpluses in advanced economies: the role of net foreign direct investments. Economia Politica, 35 (3), 1055-1080.
[4]	Maudos, J., & De Guevara, J. F. (2004). Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking & Finance, 2 8 (9), 2259-2281.
[5]	Owusu-Antwi, G., Banerjee, R., & Antwi, J. (2017). Interest rate spread on bank profitability: The case of Ghanaian banks. Journal of Accounting, Business and Finance Research, 1 (1), 34-45.
[6]	Adusei, M. (2015). The impact of bank size and funding risk on bank stability. Cogent Economics & Finance, 3 (1), 1111489.
[7]	Nyarko-Baasi, M. (2018). Effects of Non-Performing Loans on the Profitability of Commercial Banks-A Case of some Selected Banks on the Ghana Stock Exchange. Global Journal of Management and Business Research.
[8]	Alton, R. G., & Hazen, J. H. (2001). As economy flounders, do we see a rise in problem loans. Federal Reserve Bank of St. Louis, 11 (4), 45-65.
[9]	Amuakwa–Mensah, F., & Boakye–Adjei, A. (2015). Determinants of non–performing loans in Ghana banking industry. International Journal of Computational Economics and Econometrics, 5 (1), 35-54.
[10]	IMF. (2000). International Monetary Fund Annual Report 2000: Making the Global Economy Work for All. ISBN/ISSN: 9781557758439/2227-8915. p. 252.
[11]	IMF. (2005). International Monetary Fund Annual Report 2005: Making the Global Economy Work for All. ISBN/ISSN: 9781557758439/2227-8915.
[12]	Liu, G., Mirzaei, A., & Vandoros, S. (2014). The impact of bank competition and concentration on industrial growth. Economics Letters, 124 (1), 60-63.
[13]	Folajimi, F. A & Dare, O. E.(2020) Credit Risk and Financial Performance: An Empirical study of deposit money Banks in Nigeria, European Journal of Accounting, Auditing and Finance Research Vol. 8, No. 2, pp. 38-58, Published by ECRTD-UK Print ISSN: 2053-4086 (Print), Online ISSN: 2053-4094 (Online).
[14]	Owojori, A. A., Akintoye, I. R., & Adidu, F. A. (2011). The challenge of risk management in Nigerian banks in the post consolidation era. Journal of Accounting and Taxation, 3 (2), 23-31.
[15]	Prochnow, H. V. (1945). The Bretton Woods Bank Program. Sec. Corp., Banking & Mercantile L., 89.
[16]	Ivanovic, A., Bosetti, L., & Munshey, M. (2016). Fragility, Risk, and Resilience: A Review of Existing Frameworks. UN University Centre for Policy Research, Background Paper, October, 3.
[17]	Feijó, Carmem Aparecida. (2011). Credit risk and macroeconomic interactions: Empirical evidence from the Brazilian banking system. Modern Economy, 2 (5), 910-929.
[18]	Mac Donald, S. S. and Koch, T. W. 2006, Management of Banking, 6 th edition, U.S.A: Thomson - South Western.
[19]	Brown, J. R., Fazzari, S. M., & Petersen, B. C. (2009). Financing innovation and growth: Cash flow, external equity, and the 1990s R&D boom. The Journal of Finance, 64 (1), 151-185.
[20]	Bank of Ghana. (2008). Overall supervisory and regulatory authority in all matters relating to banking and non-banking financial business with the purpose to achieve a sound, efficient banking system in the interest of depositors and other customers of these institutions and the economy as a whole. Ghana: Accra.
[21]	Bank of Ghana. (2020). Daily Interbank FX Rates. Ghana: Accra.
[22]	Williams, B., & Prather, L. (2010). Bank risk and return: the impact of bank non-interest income. International journal of managerial finance.
[23]	Kosmidou, K. & Zopounidis, C., (2008). The determinants of banks' profits in Greece during the period of EU financial integration. Managerial finance.
[24]	Bank of Ghana. (2017). Annual report publications. Ghana: Accra.
[25]	Larnyoh, K. (2019). An Assessment of the Implementation of the National Policy on Local Economic Development by District Assemblies in Ghana. Journal of Business and Economic Development, 4 (1), 1.
[26]	Selassie A. Rich, 2019, BOG Cleanup Mantra and the Fate of Rural Banks: Effects on Financial Inclusion, Modern Ghana, 18.10.19.

Cite This Article

Plain Text BibTeX RIS

APA Style

Amos Ninson, Augustina Sidza, Dominic Ampah. (2021). The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. International Journal of Finance and Banking Research, 7(5), 123-132. https://doi.org/10.11648/j.ijfbr.20210705.13

Copy | Download

ACS Style

Amos Ninson; Augustina Sidza; Dominic Ampah. The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. Int. J. Finance Bank. Res. 2021, 7(5), 123-132. doi: 10.11648/j.ijfbr.20210705.13

Copy | Download

AMA Style

Amos Ninson, Augustina Sidza, Dominic Ampah. The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. Int J Finance Bank Res. 2021;7(5):123-132. doi: 10.11648/j.ijfbr.20210705.13

Copy | Download

@article{10.11648/j.ijfbr.20210705.13,
  author = {Amos Ninson and Augustina Sidza and Dominic Ampah},
  title = {The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {5},
  pages = {123-132},
  doi = {10.11648/j.ijfbr.20210705.13},
  url = {https://doi.org/10.11648/j.ijfbr.20210705.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210705.13},
  abstract = {The main purpose of the study was to examine the relationship among non-performing loans, Commercial Banks’ lending rate and financial performance of Commercial Banks in Ghana. The time series design was used along with the quantitative research approach. Secondary data on the selected variable and some control variables were accessed from the economic and monetary data base of the Central Bank of Ghana from 2006 to 2019 and used for the analysis. Both theoretical and empirical literature was reviewed to create a research gap for the study. Time series properties of the variables such stationarity and descriptive were done to assess the stability of the time series variables. The Augmented Dickey-Fuller unit-root test was used for the stationarity test since the time series plots indicated no possibility of serious structural breaks. Return on assets before tax, return on equity after tax, Commercial Banks interest rate, inflation and inter-banks interest rate were found to be significant determinants of Non-performing loans in the financial sector of Ghana. It was concluded that simultaneous relationships exist among the level of non-performing loans, Commercial Banks’ lending rate and financial performance of Banks in Ghana, hence anyone of them could serve as a lead variable or policy variable in ensuring a stable financial system in Ghana. It was recommended that the management of commercial banks must exploit other avenues of generating income such as direct project financing among others and reduce reliance on interest payment through increase in interest charges.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana
AU  - Amos Ninson
AU  - Augustina Sidza
AU  - Dominic Ampah
Y1  - 2021/10/12
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210705.13
DO  - 10.11648/j.ijfbr.20210705.13
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 123
EP  - 132
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210705.13
AB  - The main purpose of the study was to examine the relationship among non-performing loans, Commercial Banks’ lending rate and financial performance of Commercial Banks in Ghana. The time series design was used along with the quantitative research approach. Secondary data on the selected variable and some control variables were accessed from the economic and monetary data base of the Central Bank of Ghana from 2006 to 2019 and used for the analysis. Both theoretical and empirical literature was reviewed to create a research gap for the study. Time series properties of the variables such stationarity and descriptive were done to assess the stability of the time series variables. The Augmented Dickey-Fuller unit-root test was used for the stationarity test since the time series plots indicated no possibility of serious structural breaks. Return on assets before tax, return on equity after tax, Commercial Banks interest rate, inflation and inter-banks interest rate were found to be significant determinants of Non-performing loans in the financial sector of Ghana. It was concluded that simultaneous relationships exist among the level of non-performing loans, Commercial Banks’ lending rate and financial performance of Banks in Ghana, hence anyone of them could serve as a lead variable or policy variable in ensuring a stable financial system in Ghana. It was recommended that the management of commercial banks must exploit other avenues of generating income such as direct project financing among others and reduce reliance on interest payment through increase in interest charges.
VL  - 7
IS  - 5
ER  -

Copy | Download

Author Information

Amos Ninson

Finance Directorate, Accra Technical University, Accra, Ghana
Augustina Sidza

Finance Directorate, Accra Technical University, Accra, Ghana
Dominic Ampah

Internal Audit Directorate, Accra Technical University, Accra, Ghana

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Amos Ninson, Augustina Sidza, Dominic Ampah. (2021). The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. International Journal of Finance and Banking Research, 7(5), 123-132. https://doi.org/10.11648/j.ijfbr.20210705.13

Copy | Download

ACS Style

Amos Ninson; Augustina Sidza; Dominic Ampah. The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. Int. J. Finance Bank. Res. 2021, 7(5), 123-132. doi: 10.11648/j.ijfbr.20210705.13

Copy | Download

AMA Style

Amos Ninson, Augustina Sidza, Dominic Ampah. The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana. Int J Finance Bank Res. 2021;7(5):123-132. doi: 10.11648/j.ijfbr.20210705.13

Copy | Download

@article{10.11648/j.ijfbr.20210705.13,
  author = {Amos Ninson and Augustina Sidza and Dominic Ampah},
  title = {The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {5},
  pages = {123-132},
  doi = {10.11648/j.ijfbr.20210705.13},
  url = {https://doi.org/10.11648/j.ijfbr.20210705.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210705.13},
  abstract = {The main purpose of the study was to examine the relationship among non-performing loans, Commercial Banks’ lending rate and financial performance of Commercial Banks in Ghana. The time series design was used along with the quantitative research approach. Secondary data on the selected variable and some control variables were accessed from the economic and monetary data base of the Central Bank of Ghana from 2006 to 2019 and used for the analysis. Both theoretical and empirical literature was reviewed to create a research gap for the study. Time series properties of the variables such stationarity and descriptive were done to assess the stability of the time series variables. The Augmented Dickey-Fuller unit-root test was used for the stationarity test since the time series plots indicated no possibility of serious structural breaks. Return on assets before tax, return on equity after tax, Commercial Banks interest rate, inflation and inter-banks interest rate were found to be significant determinants of Non-performing loans in the financial sector of Ghana. It was concluded that simultaneous relationships exist among the level of non-performing loans, Commercial Banks’ lending rate and financial performance of Banks in Ghana, hence anyone of them could serve as a lead variable or policy variable in ensuring a stable financial system in Ghana. It was recommended that the management of commercial banks must exploit other avenues of generating income such as direct project financing among others and reduce reliance on interest payment through increase in interest charges.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - The Nexus Among Non-performing Loans, Lending Rates and Financial Performance of Banks in Ghana
AU  - Amos Ninson
AU  - Augustina Sidza
AU  - Dominic Ampah
Y1  - 2021/10/12
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210705.13
DO  - 10.11648/j.ijfbr.20210705.13
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 123
EP  - 132
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210705.13
AB  - The main purpose of the study was to examine the relationship among non-performing loans, Commercial Banks’ lending rate and financial performance of Commercial Banks in Ghana. The time series design was used along with the quantitative research approach. Secondary data on the selected variable and some control variables were accessed from the economic and monetary data base of the Central Bank of Ghana from 2006 to 2019 and used for the analysis. Both theoretical and empirical literature was reviewed to create a research gap for the study. Time series properties of the variables such stationarity and descriptive were done to assess the stability of the time series variables. The Augmented Dickey-Fuller unit-root test was used for the stationarity test since the time series plots indicated no possibility of serious structural breaks. Return on assets before tax, return on equity after tax, Commercial Banks interest rate, inflation and inter-banks interest rate were found to be significant determinants of Non-performing loans in the financial sector of Ghana. It was concluded that simultaneous relationships exist among the level of non-performing loans, Commercial Banks’ lending rate and financial performance of Banks in Ghana, hence anyone of them could serve as a lead variable or policy variable in ensuring a stable financial system in Ghana. It was recommended that the management of commercial banks must exploit other avenues of generating income such as direct project financing among others and reduce reliance on interest payment through increase in interest charges.
VL  - 7
IS  - 5
ER  -

Copy | Download