Determinants of non-performing loans: a case of selected rural banks in the ashanti, greater accra, western and eastern regions.
No Thumbnail Available
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
KNUST
Abstract
Non-performing is believed to be a major cause of several bank losses, which stimulate financial instability in the banking crisis. However, studies in this area focus on rural banks and leave the smaller banks such as the savings and loans and credit union. The purpose of this study is to investigate the determinants of non-performing loans of rural banks in Ghana. It further examines the effect of non-performing loans on the profitability of the banks. This study uses a sample size of 25 selected rural banks in Ghana observed from 2017 to 2021 using a panel regression estimation technique, fixed effect model with 125 firm year observations. Employing the fixed effect method, the evidence shows that bank profit, capital adequacy and bank size have a significant effect on non-performing loans, indicating that those variables are strong determinants of non-performing loans. The results further show that non-performing loans decrease bank financial performance. The study concludes that non-performing loans is a key contributor to poor performance in Rural banks. Based on these findings, the study recommends that Rural Banks must be empowered to adopt and comply with effective lending practices such as rigorous loan screening to avoid moral hazards and the selection of riskier applicants. Moreover, regulators must ensure the creation of a proper credit register to avoid adverse selection.
Description
A thesis submitted to the school of department accounting and finance, college of humanities and social science business of school, in partial fulfilment of the requirements for the degree of master of business administration (finance - option)