Assessing the Effects of Credit Risk Management on Financial Performance of Selected Banks in the Ghana Stock Exchange

Abstract

The study explored the effect of credit risk management and its relationship to financial performance in the Ghanaian banking sector. This study adopted the explanatory research design. In this study, census sampling was used to select four (4) banks. These banks were Access Bank, Agricultural Development Bank, Ghana Commercial Bank, and Republic Bank. Data for the study constituted secondary data which were obtained from published audited annual report of the banks and the Ghana Banking Survey. The study adopted the regression analysis. The results indicated that credit risk has a negative relationship with performance in the banking sector. Specifically, credit risk related negatively with capital adequacy ratio, asset quality, management quality, earnings and profitability and liquidity. The concept is that increase in credit risk means bad credit risk management and vice versa. The implication therefore is that an increase in credit risk management give rise to increase in financial performance. The study recommended that training programmes be organized for credit officers on effective client monitoring. For the customers, there is the need to design and implement adequate credit management programmes to educate clients on proper management of loans. The policy and procedures should be living documents that reflect current and emerging credit practices.

Keywords: Credit Risk Management, Financial Performance, Ghanaian Banking Sector.

DOI: 10.7176/RJFA/11-12-08

Publication date:June 30th 2020