Impact of Risks on the Productivity of Banks in Ghana

Abstract

This study assessed the impact of risk on dynamic productivity of banks in Ghana over a 16-year period-2004 to 2019. The study considered six distinct risk parameters: credit risk, market risk, capital risk, operational risk, insolvency risk and liquidity risk. The study employed Biennial Malmquist Productivity Index: A framework within DEA to assess the productivity of banks. Using fixed effects, truncated and systems GMM regression models, this study analysed the effect of all risk measures on productivity in order to explore a more detailed causality between risk and productivity. The findings revealed that the efficiency change component of productivity was the key driver of productivity increase in the Ghanaian banking industry. Findings suggest that, size, capital risk and liquidity risk are statistically significant and positively affects productivity. However, insolvency risk had a positive relationship with productivity yet insignificant. Finally, credit risk, market risk and operational risk were found to have a negative relationship with productivity though not significant. The findings of the study have possible implications for bank prudential supervision to monitor the risk taking behaviours of managers of banks.