Non-performing loan and liquidity of universal banks: Does minimum capital requirement matters?

Abstract

This study departs from empirical studies which had focused on the effect of non-performing loan on the performance of banks to the neglect of liquidity of banks. In the wake of the recent collapse of universal banks which has engulfed the Banking sector of Ghana, this study analyse the effect of non-performing loan on liquidity of universal banks in the context of the constant revision of the minimum capital requirement by the central bank. The cross sectional time series design was adopted and the census sampling was used to collect data from twenty banks for the period of 2008 to 2017. The outcome of the study showed that, Non-performing loan (NPL) and Capital adequacy ratio (CAR) positively influence the liquidity of the universal banks using working capital management practice, poor provision, ownership structure, bank size and loan growth as controlling variables. From this backdrop, it is empirically established that, minimum capital requirement indeed matters in the liquidity management of universal banks. It is therefore strongly recommended that the central bank should organise training programmes for the universal banks on fund management in other to have a balance funds in non-current asset and cash to avoid the negative effective on bank panic on their operation. � 2018 Academic Research Publishing Group.