Bank-Specific and Macroeconomic Factors Influencing Non-Performing Loans in Ghana: Evidence from Listed Banks

Abstract

This study investigates the determinants of non-performing loans (NPLs) in listed banks in Ghana, addressing gaps in credit risk analysis within emerging economies. Using panel data from seven banks listed on the Ghana Stock Exchange over the period 2010–2020, the study applies a random effects regression model validated by the Hausman test. The analysis is grounded in Financial Intermediation Theory and Moral Hazard Theory, incorporating both bank-specific and macroeconomic variables. The results reveal strong explanatory power (R² = 0.606), with significant negative relationships between NPLs and capital adequacy, loan-to-deposit ratio, return on equity, and bank size. Bank size is identified as the most influential factor, indicating the role of economies of scale in risk management. Macroeconomic findings show that increases in gross domestic product and money supply reduce NPL levels, while lending rates and inflation have positive but insignificant effects. The study concludes that effective NPL management requires a combination of sound institutional practices and favorable macroeconomic conditions, and recommends strengthened capital frameworks and risk-based lending strategies.