Assessing the Effectiveness of Deregulation on Non-Performing Loans in Some Selected Banks in Ghana

Abstract

The financial sector plays an important role in every country in terms of resource mobilization and allocation. It is deemed by many scholars as the pivot around which economies evolve. Banks are globally regarded as the major player in financial sector. The expansion in the activities of banks that include, but not limited to, securities markets, fund management, insurance, to a large extent, can be attributed to deregulation in the financial sector. The study sought to examine the effect of deregulation on non-performing loans in Ghana relying on panel data of sampled banks in Ghana from 1981-2016. The study presented a robust estimation results of the fixed effect and Random effect models. The robust estimation was to control for the presence of heteroskedascity and correlation in the regression model. Based on the Hausman test, we used the random effect model over the fixed effect. The results of the study established that deregulation has no significant effect on non-performing loans in Ghana. However, the study established that loan growth as a bankspecific variable had significant effect on non-performing Loans. Lastly, macroeconomics factors such as inflation and real exchange rate significantly and positively influenced non-performing loans. Recommendations were made to policy and decision makers and conclusions were drawn based on the findings of the study.