Financial Performance Analysis Of Distressed Banks: Exploration Of Financial Ratios And The Z-score

A robust bank industry is a major player in the stability of an economy, and therefore the macroeconomic decisions of most countries revolve around the bank-based financial sector. The Ghana financial industry witnessed a cleanup exercise in 2017 due to the impaired conditions under which it operated in the past. This study used financial ratios aided by the Z-score to analyse the financial performance of UT Bank prior to the 2017 bank industry health check in Ghana. Annual financials over a ten-year period (2007-2016) were used. It was realised that debt management practices of UT Bank were quite unsatisfactory and unimpressive. This was observed in the poor leverage and risk management variable ratios. Considering the results, UT Bank clearly had difficulty obliging to customers’ maturing debts. The average mean values of debt-to-equity and debt-to asset of 7.6 and 0.90 respectively pointed to a case of distress. The entire bank sector stands to benefit if credit management practices of banks, especially UT Bank and all other banks that suffered the same fate, are improved on. As a policy recommendation, the regulator of the bank industry should tighten up its supervisory and monitoring powers to help in detecting early signs of non-performing banks. The study further recommends that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percent for secured loans of net owned funds of banks.