ASSESSING THE EFFECT OF ASSET QUALITY IN GHANA. CASE STUDY OF COMMERCIAL BANKS IN GHANA
ASSESSING THE EFFECT OF ASSET QUALITY IN GHANA. CASE STUDY OF COMMERCIAL BANKS IN GHANA
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Date
2022
Authors
Addai, Joyce
(7201540009)
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Abstract
This study targeted at determining the assessing effects of asset quality Ghana. Case study of commercial banks in Ghana. This analysis was done with the guide of theories like Stakeholders Theory, Adverse Selection and Moral Hazard Theory. The study employed descriptive research design which enabled the researcher to characterize the existing structure the way it is. This research focused on commercial banks in Ghana from the periods 2010 to 2019 making a time period of 10 years interval. Regression analysis was used in determining how non-performing loans affects the financial performance of Ghanaian Commercial Banks. In this study, both Return on Assets, and Return on Equity which were employed to measure the banks’ profitability maintained the position of dependent variable. Besides, the explanatory variable included in this current study was Non Performing Loans, while control variables included Lending Rate, Loan to Deposit Ratio and Inflation and the moderating variables included Bank Size and Capital Adequacy Ratio. The findings indicated inconsistent trends with Assets Quality and Return on Assets but increasing trends with the Return on Equity. Asset Quality of commercial banks has evidence of significant negative effect on Return on Asset. There is a statistically significant positive effect of Lending Rate on Return on Assets which implies that increase in lending rates of commercial banks leads to an increase in Return on Asset in Ghana. It is established that Bank Size positively moderates the relationship between Asset Quality and Return on Assets but does not moderate the relationship between Asset Quality and Return on Equity. The study did not cover all profitability indicators, and it is suggested that additional research be done to include other profitability indicators. This study recommends an increase loan quality and that bank loan officers and management should pay close attention to the bank's asset quality in terms of loan performance in order to minimize loan losses.