Assessment of Environmental Sources of Financial Risks on Commercial Banks in Ghana

Kofi Twum Antwi, Beatrice Darko Obiri, Elizabeth Asantewaa Obeng and Simon Abugre
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Kofi Twum Antwi: Agricultural Development Bank (ADB), P.O. Box 16, Techiman Branch-Ghana
Beatrice Darko Obiri: Council for Scientific and Industrial Research -Forestry Research Institute of Ghana (CSIR-FORIG), P. O. Box UP 63 KNUST, Kumasi-Ghana
Elizabeth Asantewaa Obeng: Council for Scientific and Industrial Research -Forestry Research Institute of Ghana (CSIR-FORIG), P. O. Box UP 63 KNUST, Kumasi-Ghana
Simon Abugre: Department of Forest Science, University of Energy and Natural Resource, Sunyani-Ghana

International Journal of Finance & Banking Studies, 2020, vol. 9, issue 3, 86-98

Abstract: This research examined environmental sources of financial risks and its impact on commercial banks in Ghana. Primary data from ninety-six (96) middle level bank managers and time series secondary data from thirty-two banks on banking performance and stability for the period 2006-2018 as well as performance of five major industrial businesses (agriculture, mining, construction, manufacturing and trade) were collected and analyzed using descriptive statistics and multivariate dynamic panel regression model. Banking performance was measured by return on assets (ROA) and return on equity (ROE) while banking stability was assessed by capital adequacy ratio (CAR) and non-performing loans ratio (NPLR). The results show that, in bank lending, mining was perceived to be the topmost source of indirect environmental risk (credit and reputational risks), while agriculture was perceived to be the leading source of direct environmental risk (business risk). Furthermore, perceptions of environmental sources of financial risk by mangers of locally owned banks differed from that of foreign owned banks. Growth of mining, trade and manufacturing positively influenced bank performance while the growth of construction and agriculture negatively influence bank stability. The study thus provides supportive evidence that commercial banks require set standards that would guide clients’ business towards environmental sustainability. The observation that except for agriculture, all the other environmental sources of financial risk had a significant influence on bank NPLR is thought-provoking engendering the need for further studies to establish the fundamental reasons for this relationship.

Keywords: Environmental Risk; Bank Performance; Stability; Return on Assets (ROA); Return on Equity (ROE); Capital Adequacy Ratio (CAR); Non-performing Loans Ratio (NPLR) (search for similar items in EconPapers)
Date: 2020
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