Assessing the causes of Non-performing Loans and the impact on profitability of Commercial Banks

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Date
November, 2019
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Abstract
Commercial banks in Ghana have consistently been confronted with the problem of non-performing loans that has impacted their profitability significantly. Notwithstanding the steps, including licensing of credit reference bureaus, to reduce the impact of non-performing loans, the trend is on the increasing trajectory and the profits of the banks have been affected. Therefore the purpose of the research was to assess the factors accounting for the incidence of non-performing loans of the Commercial Banks in Ghana, to determine the key determinants of profitability of the commercial banks in Ghana, to ascertain the internal factors affecting the performance of the commercial banks in Ghana and to assess the effects of non-performing loans on the profitability of the Commercial Banks in Ghana. In order to achieve the objectives, a survey was conducted where a questionnaire was design and a quantitative analysis was carried out to determine the findings using SPSS as the tool in performing the analysis. The findings indicated that the factors accounting for the incidence of non-performing loans of the Commercial Banks in Ghana were the Poor credit appraisal techniques, Business failure, Inadequate marketing avenues, Inefficient appraisal and monitoring, Lack of proper education on the business area, Lack of sufficient supervision from the bank and High interest rate charged by the bank.. However, there were minor factors that causes non-performing loans which were the Diversion of funds, wrong timing of credit delivery, Moral hazard and insider lending and high consumption expenditure. Also, the key determinants of profitability of the Commercial Banks in Ghana were the Capital Adequacy, Asset Quality, Management Quality, Earning Capital and Liquidity. There were three internal factors which was identified to be affecting the performance of the Commercial Banks in Ghana. These internal factors were the Technology, Credit Risk and Interest Rate.
Description
A thesis submitted to the Department of Construction Technology and Management, Kwame Nkrumah University of Science and Technology, Kumasi in Partial fulfilment of the requirement for the award degree of Master of Science in Project Management.
Keywords
Non-Performing Loans, Profitability, Internal Factors, Commercial Banks, Poor Credit Appraisal
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