The impact of credit risk on financial performance: Evidence from rural and community banks in Ghana

Authors

  • Moses Dunyoh Data Link Institute of Business and Technology, Ghana
  • Ernest Twumasi Ankamah School of Graduate Studies, Kwame Nkrumah University of Science and Technology, Ghana
  • Samuel Japo Kosi Kosipa College of Distance Education, University of Cape Coast, Ghana

Keywords:

Credit risk, non-performing loans, total liabilities to total assets, financial performance, rural and community banks.

Abstract

The study examines the impact of credit risk on financial performance of rural and community banks in Ghana. The study adopts a survey study design. The target population consists of all rural and community banks in Ghana. The study utilized the purposive sampling method to select Ghana's rural and community banks. The research relied on annual reports from rural and community banks in Ghana for the period 2014-2018. The research used ten(10) rural and community banks that their financials are available throughout the time being studied. The secondary data for the analysis is from the rural and community banks' annual reports. Data analysis was performed using STATA version 13 software. The findings show negative relationships between the two credit risk indicators and the measures for financial performance. The study concludes that rural and community banks’ financial performance is compromised by credit risk and that credit risk is steadily increasing and has the ability in the future to hinder rural and community banks’ financial performance. The study's key recommendation is that management of rural and community banks should; work closely with credit reference offices in the country to scrutinize credit applicants, assess credit applicants efficiently by using credit manuals as a basis for screening poor clients from good ones and applying all credit policies to ensure that human interference is prevented in the criteria for credit applicants.

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Published

2022-03-01

How to Cite

Dunyoh, M. ., Ankamah, E. T. ., & Kosipa, S. J. K. (2022). The impact of credit risk on financial performance: Evidence from rural and community banks in Ghana. Hybrid Journal of Business and Finance, 3(1). Retrieved from https://www.royalliteglobal.com/hjbf/article/view/740

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