I. J. of Business & Management Research
Review Article | 
Analysis of the Relationship between Credit Risk and Bank Performance of Some Commercial Banks in Ghana
Author(s) : Joseph Acquah*, Yusif Arthur, Damianus Kofi Owusu
Publisher : FOREX Publication
Published : 30 June 2020
e-ISSN : 2347-4696
Page(s) : 34-51
Abstract
This study analysed the relationship between credit risk and bank financial performance of selected commercial banks in Ghana for the period 2010 - 2014, using the banks respective financial statements. The study employed the quantitative research approach. The sample was Ghana Commercial Bank Limited, Zenith Bank Limited, UT Bank and Ecobank Plc. These four banks were selected using stratified random sampling technique. The data were primarily secondary and quantitative in nature. Both descriptive and inferential statistics were used to analyse the data. When the banks were compared, Ghana Commercial Bank Limited was found to be more liquid than Zenith Bank Limited. That of Zenith bank was also higher than UT bank and Ecobank Plc .However, profitability indicators showed that Zenith Bank Limited and Ecobank Plc utilised its assets better than Ghana Commercial Bank Limited and UT bank resulting in the two banks higher scores over the period. The findings show further that Ghana Commercial Bank Limited showed higher ratios for investment in the future while Zenith Bank Limited showed higher ratios of higher dividend immediately. However, Zenith Bank Limited capital adequacy level was far higher than the legal requirement of Banking sector while its counterparts fell slightly below it in terms of average. Based on the main findings and conclusions, it is recommended that Ghana Commercial Bank Limited should find a means of reducing its expenditure, introducing prudent assets management, should be cautious when assisting government in time of economic difficulty, and operate as an independent entity.
Keywords: Credit risk , Bank financial performance , Loan default payment.
Joseph Acquah, CEMBA, Department of mathematics, Wesley Girls’ High School, Cape Coast, Ghana, jakwameato@gmail.com
Yusif Arthur, PhD Student, Department of Business Studies, Cape Coast Technical University, Cape Coast, Ghana
Damianus Kofi Owusu, PhD Student, Department of Mathematical Sciences, University of Mines and Technology, Tarkwa, Ghana, dkowusu@st.umat.edu.gh
[1] Al-Khouri, R. (2011). Assessing the risk and performance of the GCC banking sector, International Journal of Finance and Economics, 65, 72-78.
[2] Altunbas, P. (2005). Mergers and acquisitions and bank performance in Europe: The role of strategic similarities. Paris: European Central Bank.
[3] Altunbas, Y., Carbo, S., Gardener, E. P. M., & Molyneux, P. (2007). Examining the relationships between capital, risk and efficiency in European banking. EuropeanFinancial Management, 13(1), 49-70.
[4] Adrian, T., & Shin, H. S. (2010). Liquidity and leverage. Journal of Financial Intermediation, 19, 418-437
[5] Anthony, M. C. (2012). Commercial bank risk management: An analysis of the process. Unpublished master’s thesis, The Wharton School, University of Pennsylvania, Pennsylvania.
[6] Ayadi, O. F., Adebayo, A. O., &Omolehin, W. E. (2009). Banking performance measurement in a developing economy. Journal of Banking and Finance, 3(1), 12-23.
[7] Bank for International Settlements. (2011). Global liquidity: Concept, measurement and policy implications. CGFS Papers 45, committee on the global financial system. Retrieved October 28, 2013, from
[8] Bank of Ghana. (2010)Annualreport.http://www.bis.org/publ/cgfs45.pdf
[9] Bank of Ghana (2011). Annual report. Accra: BoG.
[10] Bank of Ghana (2013). Annual report. Accra: BoG
[11] Banker, R., Chang, H., & Lee, S. Y. (2010). Differential impact of Korean banking system reforms on bank productivity. Journal of Banking and Finance, 34(7), 1450-1460.
[12] Barnes, P. (2005). The analysis and use of financial ratios: A review article. Journal of Business Finance and Accounting, 14(4), 449-461.
[13] Barth, J. R., Caprio, G., & Levine, R. (2001). The regulation and supervision of banks around the world: A new database. World Bank Policy Research Working Paper Number 2588.
[14] Basel Committee on Banking Supervision. (2004). Risk management practices and regulatory capital: Cross-sectional comparison. Retrieved October 24, 2014, from www.bis.org.
[15] Boisjoly, R. P. (2009). The cash flow implications of managing working capital and capital investment. Journal of Business & Economic Studies, 15(1), 98108.
[16] Brownbrigde, M. (1998). The causes of financial distress in local banks in Africa and implications for prudential policy. New York: UNCTAD.
[17] Carson, D., Gilmore, A., Perry, C., &Gronhaug, K. (2010). Quantitative marketing research (2nd ed.). London: Sage.
[18] Cetorelli, N., & Goldberg, L. S. (2012, May). Liquidity management of U.S. global banks: Internal capital markets in the great recession. New York: Federal Reserve Bank of New York.
[19] Cetorelli, N., & Goldberg, L. S. (2013). Banking globalisation and monetary transmission. Journal of Finance, 67(5), 1811-1843.
[20] Chen, K. H., &Shimerda, T. A. (2011). An empirical analysis of useful financial ratios. Financial Management, Spring, 51-60.
[21] Chijoriga, M. M. (1997). Application of credit scoring and financial distress prediction models to commercial banks’ lending: The case of Tanzania. Unpublished doctoral dissertation, WirtsChaftsnnversitat Wien University, Vienna.
[22] Creswell, J. W. (2010). Quantative inquiry and research design (3rd ed.). London: Sage Publication, Inc.
[23] Demirguc-Kunt, A., & Huizinga, H. (2010). Financial structure and bank profitability. New York: World Bank.
[24] DeYoung, R., & Whalen, G. (1994). Banking industry consolidation: Efficiency issues (Working Paper No. 110). A Conference of the Jerome Levy Economics Institute, Office of the Comptroller of the Currency, Washington, DC.
[25] Ezzamel, M., Mar-Molinero, C., & Beecher, A. (2012). On the distributional properties of financial ratios. Journal of Business Finance and Accounting, 14(4), 463-481.
[26] Fieldsend, S., Longford, N., & McLeay, S. (2012). Industry effects and the proportionality assumption in ratio analysis: A variance component analysis. Journal of Business Finance and Accounting, 14(4), 497-517.
[28] Gravetter, F. J., &Forzano, L. B. (2006). Research methods for the behavioural sciences (2nd ed.). Belmont: Thomson Wadsworth.
[29] Hsiao, H. C., Chang, H., Cianci, A. M., & Huang, L. H. (2010). First financial restructuring and operating efficiency: Evidence from Taiwanese commercial banks. Journal of Banking and Finance, 34(7), 1461-1471. Kargi, H. S. (2011). Credit risk and the performance of Nigerian banks. Unpublished master’s thesis, Ahmadu Bello University, Zaria.
[30] Khwaja, A., & Mian, A. (2008). Tracing the impact of bank liquidity shocks: Evidence from an emerging market. American Economic Review, 98, 14131442.
[31] Kithinji, A. M. (2010). Credit risk management and profitability of commercial banks in Kenya. Unpublished master’s thesis, School of Business, University of Nairobi, Nairobi.
[32] Malhotra, N. K., & Birks, D. F. (2007). Marketing research (3rd ed.). Harlow: Dentice Hall/Pearson Education.
[33] Richard, E., Chijoriga, M., Kaijage, E., Peterson, C., &Bohman, H. (2008). Credit risk management
[34] System of commercial banks in Ghana and Tanzania, International Journal ofEmerging Markets, 3(3), 323-332.
[35] Russell, P., &Boisjoly, L. (2009). The cash flow implications of managing working capital and capital investment. Journal of Business and Economic Studies, 15(1), 98-108.
[36] Salmi, T., &Martikainen, T. (2009). A review of the theoretical and empirical basis of financial ratio analysis. The Finnish Journal of Business Economics, 426-448.
[37] Slywotzky, A. J., &Drzik, J. (2005). Countering the biggest risk of all. Harvard Business Review,82, 78-88
Joseph Acquah*, Yusif Arthur and Damianus Kofi Owusu (2020), Analysis of the Relationship between Credit Risk and Bank Performance of Some Commercial Banks in Ghana. IJBMR 8(2), 34-51. DOI: 10.37391/IJBMR.080202.