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The Relationship Between Credit Risk Management and the Profitability of Banks in Ghana

Author

Listed:
  • Roger Owusu-Boafo

    (Business School, University of Ghana, Legon, Ghana)

  • Ernest Obeng

    (School of Finance and Economics, Jiangsu University, China)

  • Jone Yeobah Addo

    (Accounting Department, University of Education, Winneba, Ghana)

Abstract

Banks are faced with several types of risks. Prominent among these risks is credit risk. Profitability is key to the growth and survival of banks. This study therefore seeks to investigate the relationship that exists between credit risk and the profitability of banks in Ghana. To achieve this objective, eight banks were sampled out of a population of twenty nine (29) banks over a ten (10) year period from 2005 to 2014. A panel regression was run using Return on assets (dependent variable) as a proxy for profitability while non-performing loan ratio and net charge ff to total loans and advances (independent variables) were used as proxies for credit risk. Other variables such as size, growth and debt ratio which infuence profitability were controlled for in the model. Secondary data comprising annual reports of the selected banks was used for the study. The study established a positive and signifcant relationship between credit risk and the profitability of banks in Ghana. This implies that banks in Ghana enjoy profit in the midst of all the credit risk. The study also confrmed the findings of previous studies that, size and debt ratio are factors that infuence profitability as there was a positive and significant relationship with profitability.

Suggested Citation

  • Roger Owusu-Boafo & Ernest Obeng & Jone Yeobah Addo, 2020. "The Relationship Between Credit Risk Management and the Profitability of Banks in Ghana," ACTA VSFS, University of Finance and Administration, vol. 14(2), pages 92-114.
    • Handle: RePEc:prf:journl:v:14:y:2020:i:2:p:92-114
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    References listed on IDEAS

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    More about this item

    Keywords

    credit risk; profitability; return on asset; non-performing loans; debt ratio;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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