The antecedents of credit risk in Ghana’s banking sector a robust least squares estimation approach

Abstract

The purpose of this study is to investigate the antecedents of credit risk in Ghana’s banking sector within the context of policy rate, inflation rate, exchange rate, and cost efficiency. The study relied on 10-year secondary data from 18 Ghanaian-resident universal banks spanning from 2012 to 2021. The study adopted an explanatory research design and quantitative approach together with a panel robust least squares estimation technique. The results indicated that policy rate and cost efficiency have negative and significant impacts on credit risk whereas exchange rate and inflation positively predict credit risk. The study concludes that directing policy interventions towards policy rate, exchange rate, inflation and cost efficiency is the surest way of curbing credit risk in Ghana’s banking sector. It was therefore recommended to the Bank of Ghana to ensure an optimum policy rate that will protect the banking sector, control inflation and promote business activities in the country. Additionally, radical industrialization programmes should be embarked on to reduce the massive importation so as to curb the debilitating currency depreciation. Finally, banks should also ensure stringent internal control measures to enhance operational efficiency.