Credit Risk and Profitability of Listed Banks in Ghana

Abstract

This research assesses the relationship between credit risk and the performance of listed banks in Ghana. The data sample consisted 8 listed banks covering a 7-year period from 2010 to 2016. Findings from the study reveal that total assets and liabilities on average increased over the seven (7) years period. But this increase has been almost in the same proportion, leading to an almost constant leverage ratio over the period. On the average, the ROA of most of the banks increased over time. An explanation for this could be that liquid assets, total assets, shareholder’s fund and total comprehensive income have on average augmented over the years. Size formed the highest correlation with ROA, followed by board independence and leverage in that order. The regression result revealed a negative impact of credit risk on performance. A unit increase in the credit risk of banks will lead to a 0.0324 units decrease in the return on assets. Bank size had a positive impact on performance. The positive relationship implied that larger banks perform better over time than smaller banks