Effect of Credit Risk on Odds of Occurrence of Financial Crisis: Evidence from Ghana
DOI:
https://doi.org/10.47672/ajf.1279Keywords:
Credit risk, financial crisis, commercial banks, GhanaAbstract
Purpose: Credit risk has been stated in extant literature to be one of the predictors of financial crisis. Nevertheless, stakeholders of Ghana's financial sector seemed to pay less attention to the possible relationship between credit risk and financial crisis; possibly due to the limited empirical studies in this area. This study, therefore, assessed the effect of credit risk on the odds of occurrence of financial crisis among commercial banks in Ghana, employing annual data for the period 2010 - 2019 from 22 commercial banks selected using the criterion sampling technique.
Methodology: The study was quantitative in nature, and employed the explanatory design. The binary logistic regression technique was used for the estimation of the relationship between credit risk and financial crisis.
Findings: It was revealed that credit risk has a significantly negative effect on the odds of occurrence of financial crisis among commercial in Ghana.
Recommendation: It was therefore recommended that management of commercial banks in Ghana pay attention to bank clients and their demands, level of risk to take, as well as risk management techniques, to ensure that the right decisions are taken at all times.
Downloads
References
Al-Khouri, R. (2011). Assessing the risk and performance of the GCC banking sector. International Research Journal of Finance and Economics, 65(1), 72-81.
Allen, F., Otchere, I., & Senbet, L. W. (2011). African financial systems: A review. Review of Development Finance, 1(2), 79-113.
Amah, O. E., & Oyetuunde, K. (2020). The effect of servant leadership on employee turnover in SMEs in Nigeria: the role of career growth potential and employee voice. Journal of Small Business and Enterprise Development, 16(13), 76-92.
Atinyo, D., & Kawor, S. (2022). Relationship between corporate governance and financial crisis: A study of Ghana's banking sector. The International Journal of Business & Management, 10(2), 79-85.
Baldacci, E., Gupta, S., & Mulas-Granados, C. (2013). Fiscal adjustment and growth: Beware of the credit constraints. VoxEU. org, 31, 16-30.
Bell, S., & Morse, S. (2013). Measuring sustainability: Learning from doing. Routledge.
Bhanot, K., Burns, N., Hunter, D., & Williams, M. (2014). News spillovers from the Greek debt crisis: Impact on the Eurozone financial sector. Journal of Banking & Finance, 38, 51-63.
Boadi, S. (2018, August 16). How Capital Bank blew GH₵620m: The inside story. Daily Guide Network. Retrieved from http://www.dailyguidenetwork.com [Accessed 23 December 2020].
Cucinelli, D. (2015). The impact of non-performing loans on bank lending behavior: evidence from the Italian banking sector. Eurasian Journal of Business and Economics, 8(16), 59-71.
Ewert, R., Schenk, G., & Szczesny, A. (2000). Determinants of bank lending performance in Germany. Schmalenbach Business Review, 52(4), 344-362.
Hosmer Jr, D. W., Lemeshow, S., & Sturdivant, R. X. (2013). Applied logistic regression (Vol. 398). John Wiley & Sons.
IMF. (2018). Financial crisis, macroeconomic shocks, and government balance sheet: A panel analysis (IMF Working Paper No. WP/18/93). International Monetary Fund.
Kargi, H. S. (2011). Credit risk and the performance of Nigerian banks. Ahmadu Bello University, Zaria.
Larnyoh, M. T. (2018, September 8). Here are the auditing firms for the 7 collapsed banks. Pulse. Retrieved from http://www.pulse.com [Accessed 23 December 2020].
MoF. (2019). 2019 budget statement. Accra, Ghana: Ministry of Finance.
Naceur, S. B., & Omran, M. (2011). The effects of bank regulations, competition, and financial reforms on banks' performance. Emerging markets review, 12(1), 1-20.
Nyavor, G. (2018, August 10). UT Bank collapse: ¢30m loan for ¢1m collateral; MP cited. My Joy Online. Retrieved from myjoyonline.com.
Owusu, I. (2019, February 14). New capital requirement by BoG - Panacea for bank failures? Business Ghana.
Patnaik, I., & Vasudevan, D. (1999). Interest rate determination: An error correction model. National Council of Applied Economic Research.
Poudel, R. P. S. (2012). The impact of credit risk management on financial performance of commercial banks in Nepal. International Journal of arts and Commerce, 1(5), 9-15.
Roy, S., & Kemme, D. M. (2012). Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now. International Review of Economics & Finance, 24, 270-294.
Salah, N. B., & Fedhila, H. (2012). Effects of securitization on credit risk and banking stability: Empirical evidence from American commercial banks. International Journal of Economics and Finance, 4(5), 194-207.
Sikasem, K. (2017). UT and Capital Bank takeover: A few clarifications for stakeholders. Retrieved from http://www.sikasem.org [Accessed 23 December 2020].
Stubley, D. J., Paparas, D., Tremma, O., & De Aguiar, L. (2018). An investigation into the price transmission between producers and retailers within the UK milk market. Advances in Business-Related Scientific Research Journal, 9(1), 14-43.
Ueda, K., & di Mauro, B. W. (2010). The value of the too-big-to-fail subsidy to financial institutions. In S. Claessens, M. Keen, & C. Pazarbasioglu (Eds.), Financial sector taxation: The IMF's report to the G-20 and background material (pp. 14-29). Washington, DC: The International Monetary Fund.
UN. (2015) Sustainable development goals. New York, NY: United Nations. Available at https://www.ghana.un.org (Accessed 23 December 2021).
Veronesi, P., & Zingales, L. (2010). Paulson's gift. Journal of Financial Economics, 97(3), 339-368.
Yilmaz, K. (2010). Return and volatility spillovers among the East Asian equity markets. Journal of Asian Economics, 21(3), 304-313.
Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How does investor sentiment affect stock market crises? Evidence from panel data. Financial Review, 46(4), 723-740.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Seyram Kawor, Divine Atinyo, Seyram Amedede, Gordon Aboagye, Kelvin Nii Dodoo, Emmanuel Kporku, Calvis Creppy
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
