Abstract
The study explored the effect of credit risk management and its relationship to financial performance in the Ghanaian banking sector. This study adopted the explanatory research design. In this study, census sampling was used to select four (4) banks. These banks were Access Bank, Agricultural Development Bank, Ghana Commercial Bank, and Republic Bank. Data for the study constituted secondary data which were obtained from published audited annual report of the banks and the Ghana Banking Survey. The study adopted the regression analysis. The results indicated that credit risk has a negative relationship with performance in the banking sector. Specifically, credit risk related negatively with capital adequacy ratio, asset quality, management quality, earnings and profitability and liquidity. The concept is that increase in credit risk means bad credit risk management and vice versa. The implication therefore is that an increase in credit risk management give rise to increase in financial performance. The study recommended that training programmes be organized for credit officers on effective client monitoring. For the customers, there is the need to design and implement adequate credit management programmes to educate clients on proper management of loans. The policy and procedures should be living documents that reflect current and emerging credit practices. Keywords: Credit Risk Management, Financial Performance, Ghanaian Banking Sector. DOI: 10.7176/RJFA/11-12-08 Publication date: June 30th 2020
Highlights
Universal access to financial services is a critical component which drives development since it includes the vulnerable such as low-income household in the society to participate in the governance of the country (Iqbal & Sami, 2017)
Capital adequacy increases the strength of the bank, which improves the solvency of the bank and the capacity to absorb the loan loss and protect the bank from bankruptcy
The results were tested to see the extent of the relationship using the following linear regression equation model: Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + € Where; Y= Financial performance of listed banks in the Ghana Stock Exchange in the Bono East of Ghana measured by Return on Assets (ROA) X1 the capital adequacy ratio
Summary
Universal access to financial services is a critical component which drives development since it includes the vulnerable such as low-income household in the society to participate in the governance of the country (Iqbal & Sami, 2017). Within the short and medium terms, making finance available has its adverse impact on the rural populace; it is important that various measures be put in place to overcome these barriers so that the long-term convergence of productivity among the different sectors of the economy could be realized. When this is done, the expectation is a broad spectrum of opportunities that might arise from this progressive change and a renewed mindset of the banks to take up challenges affecting loan performance
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