Credit risk management and NBFI profitability

Abstract

This study seeks to examine the relationship between credit risk management and Non-Bank Financial Institution (NBFI) profitability. The analysis is performed using data derived from the financial statements of NBFIs from the Bank of Ghana database during a 7-year period ranging from 2006-2012. The study uses a sample of 42 NBFIs in the industry. Correlated panels corrected standard error model is used to estimate the regression equation. The results of the study establish that there is a negative relationship between credit risk management and NBFI profitability. This means NBFIs with high credit risk tend to have lower profit levels or perform poorly, which suggests that better credit risk management helps to improve the profitability of NBFIs. There also exists a statistically significant positive relationship between NBFI size and NBFI profitability, and leverage is also positively related to NBFI performance.