Nonperforming loans and bank profitability: evidence from an emerging market

Purpose The purpose of this paper is to investigate the bank-specific and macroeconomic determinants of nonperforming loans (NPLs) as well as the impact of NPLs on bank profitability. Design/methodology/approach Using a sample of 22 Ghanaian banks over the period 2005-2010, the study employs a fixed...

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Bibliographic Details
Published in:African journal of economic and management studies 2016-01, Vol.7 (4), p.462-481
Main Authors: Laryea, Esther, Ntow-Gyamfi, Matthew, Alu, Angela Azumah
Format: Article
Language:English
Subjects:
Adverse selection
Bank failures
Banking
Banking industry
Banks
Credit risk
Default
Economic crisis
Economic growth
Economic models
Emerging markets
Foreign exchange rates
GDP
Ghana
Gross Domestic Product
Inflation
Interest rates
International finance
Loan losses
Loans
Macroeconomics
Moral hazard
Nonperforming loans
Policy making
Profitability
Studies
Sub-Saharan Africa
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Summary:Purpose The purpose of this paper is to investigate the bank-specific and macroeconomic determinants of nonperforming loans (NPLs) as well as the impact of NPLs on bank profitability. Design/methodology/approach Using a sample of 22 Ghanaian banks over the period 2005-2010, the study employs a fixed effect panel model in estimating three different empirical models. Findings The study finds new evidence of bank-specific factors as well as macroeconomic factors determining NPLs. Inflation and industry concentration are not significant in determining NPLs, although both are positively related to NPLs. Practical implications The findings of this study have important implications for policy makers and bank managers. Originality/value The paper offers significant value in shaping and improving the banking sector of emerging markets.
ISSN:2040-0705
2040-0713
DOI:10.1108/AJEMS-07-2015-0088