Title: Determinants of non-performing loans in Ghana banking industry

Authors: Franklin Amuakwa-Mensah; Angela Boakye-Adjei

Addresses: Department of Economics, Swedish University of Agricultural Sciences (SLU), Box 7013, S-750 07 Uppsala, Sweden ' Barclays Investment Bank, 10 South Colonnade, London, E14 4PU, UK

Abstract: The detrimental effect non-performing loans (NPLs) have on banks' income and the economy makes it necessary to examine the determinants of NPLs in the banking industry in Ghana. Using panel regression model, it was found that both bank-specific variables (i.e., previous year's NPL, bank size, net interest margin (NIM), and current year's loan growth) and macroeconomic variables (i.e., previous year's inflation, real gross domestic product (GDP) per capita growth and real effective exchange rate) significantly affect NPLs in the banking industry. Also the sub-sample estimations showed that both bank-specific (i.e., previous year's NPLs and current year's loan growth) and macroeconomic factors (i.e., real effective exchange rate, real GDP per capita growth, and previous year's inflation rate) affect NPLs of large banks. However, whereas bank-specific variables (i.e., previous year's NPLs and current year's loan growth) are important in explaining NPLs, macroeconomic factors are not important in explaining NPLs for small banks.

Keywords: NPLs; non-performing loans; panel model; Hausman test; banking industry; Ghana; bank income.

DOI: 10.1504/IJCEE.2015.066207

International Journal of Computational Economics and Econometrics, 2015 Vol.5 No.1, pp.35 - 54

Received: 26 Dec 2013
Accepted: 01 Apr 2014

Published online: 08 Dec 2014 *

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