Title: Credit risk and universal banking: evidence from the banking industry in Ghana

Authors: Franklin Amuakwa-Mensah; George Marbuah; Victoria N. Sam; Alfred Barimah

Addresses: Department of Economics, Swedish University of Agricultural Sciences (SLU), P.O. Box 7013, S-750 07 Uppsala, Sweden ' Department of Economics, Swedish University of Agricultural Sciences (SLU), P.O. Box 7013, S-750 07 Uppsala, Sweden ' Department of Economics, University of Kiel, Leibnizstraße 3 R. 110, Kiel, Germany ' Department of Economics, University of Ghana, P.O. Box LG 57, Legon, Accra, Ghana

Abstract: Using a dynamic panel data and an Arellano-Bond estimation technique, we estimate the determinants of credit risk and the effect of the introduction of universal banking licence on credit risk in the banking industry of Ghana. We find that the effect of universal banking policy on credit risk in the banking industry depends on the definition of credit risk. Using total loan to total asset ratio as a proxy for credit risk, we observe a positive effect of universal banking policy on credit risk in all our models, indicating that universal banking policy has the potential of increasing credit risk. However, there is a mixed and weak effect of universal banking policy on credit risk when we define credit risk as bad debt to total loan ratio. Also, we find that both bank-specific and macroeconomic variables do explain credit risk in the banking industry of Ghana.

Keywords: credit risk; universal banking; bad debt; dynamic panel data; Arellano-Bond estimation; Ghana; banking industry.

DOI: 10.1504/IJCEE.2015.072294

International Journal of Computational Economics and Econometrics, 2015 Vol.5 No.4, pp.406 - 429

Received: 07 May 2014
Accepted: 23 Nov 2014
Published online: 08 Oct 2015 *

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