Determinants of Loan Portfolio Size of Universal Banks in Ghana

Abstract

This study examines the determinants of universal banks’ loan portfolio size in Ghana using the system generalize method of moments (GMM) estimator. The study made use of data gathered from Universal banks from 2000 to 2011. It was discovered from the analysis of the study that the determinants of banks portfolio size of universal banks in Ghana are previous periods’ loan size, total investments of the banks, total deposits, credit risk, money supply and the foreign or local ownership majority of the banks. The more foreign ownership dominated a universal bank is the less loans its gives out relative to local majority owned banks. However, these foreign ownership dominated banks tend to increase loans when they make good investments to complement it. It was also revealed that high credit risk discourages universal banks in Ghana from giving out more loans. It is recommended that in giving out loans universal banks’ credit evaluation of borrowers must be more rigorous to reduce the credit risk so as not to discourage them from giving out more subsequent loans. Universal banks must put in measures to develop strong relationship with their loan clients to encourage then to service their loans and interest since previous year loans portfolio size affects current year loans portfolio size. Government must help improve the work of credit bureaus through enactment and enforcement of laws and also create a conducive environment to enable foreign dominated banks conduct the necessary research about the Ghanaian economy that gives them confidence, familiarity and comfort to create more loans.