An assessment of the impact of non-performing loans and macroeconomic indicators on bank performance

Abraham Nii Adu Okine () and David Kwashie Garr ()

International Journal of Economics and Financial Modelling, 2025, vol. 10, issue 1, 21-41

Abstract: The purpose is to explores the impact of NPLs and macroeconomic indicators on bank performance in Ghana. Non-performing loans pose significant challenge to banks, with detrimental implications for financial and economic stability. This study used secondary data obtained from financial reports of nine firms in Ghanaian, covering 2007 to 2021. The investigation focused on bank’s ROA and ROE as proxies for measuring performance, while NPLs, GDP, bank size, and inflation were adopted as predictor factors. The random effects model was employed, using Ordinary Least Squares and autoregressive methods. The outcomes show insignificant direct, and negative connection between NPLs and bank ROA and ROE respectively. Additionally, the study demonstrates that inflation rate and bank size posit statistically important inverse, and direct influence on ROA and ROE respectively. NPL does not influence bank’s ROE and ROA. Inflation and bank size have impact on performance. Considering the diverse influences of NPLs on financial metrics, and the significant impact of inflation and bank size on performance, policymakers and institutional managers must prioritize effective risk management, rigorous customer screening and close monitoring of macroeconomic conditions to ensure that strategic financial planning aligns with current economic environment for sustainable performance.

Keywords: NPLs; Variables; ROA; ROE; Provision; Credit-risk; Financial-stability; Macroeconomic. (search for similar items in EconPapers)
Date: 2025
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