Applying the breaks to non-performing loans in Ghana

Anthony Amoah, Rexford Kweku Asiama and Kofi Korle

International Journal of Emerging Markets, 2021, vol. 18, issue 8, 1978-1993

Abstract: Purpose - This paper acknowledges the rising levels of non-performing loans (NPLs) and the consequences associated with such patterns to an emerging economy like Ghana. In theory, one would expect rising NPLs to have a negative impact on an economy, especially regarding credit creation and private sector growth. This research, consistent with empirical literature, constructs a measure of financial market development to investigate its effect on Ghana's NPLs. Design/methodology/approach - The fully modified ordinary least squares (FMOLS) econometric technique is used as a way of addressing common time series identification issues such as endogeneity and serial correlation. Findings - The study finds that the growth of the financial market has a negative and statistically significant relationship with NPLs in Ghana. Therefore, building a stable financial sector is key to addressing Ghana’s rising rates of NPLs. Practical implications - Applying the breaks to Ghana's NPLs would involve deepening credit and improving efficiency through good governance. The study suggests that such a mechanism would increase financial sector performance and reduce the growth risks arising from the industry. Originality/value - The study analyzes the influence of financial market development on the quarterly growth of NPLs in Ghana. Most studies only focus on annual growth of NPLs.

Keywords: Non-performing loans; Financial market development; FMOLS; Ghana (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-03-2020-0287

DOI: 10.1108/IJOEM-03-2020-0287

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