Credit Risk and Universal Banking: Evidence from the Banking Industry in Ghana

Abstract

Using a dynamic panel data and an Arellano-Bond estimation technique, we estimate the determinants of credit risk and the effect of the introduction of universal banking licence on credit risk in the banking industry of Ghana. We find that the effect of universal banking policy on credit risk in the banking industry depends on the definition of credit risk. Using total loan to total asset ratio as a proxy for credit risk, we observe a positive effect of universal banking policy on credit risk in all our models, indicating that universal banking policy has the potential of increasing credit risk. However, there is a mixed and weak effect of universal banking policy on credit risk when we define credit risk as bad debt to total loan ratio. Also, we find that both bank-specific and macroeconomic variables do explain credit risk in the banking industry of Ghana.

Keywords

credit risk; universal banking; bad debt; dynamic panel data; Arellano-Bond estimation; Ghana; banking industry.

Published in

International Journal of Computational Economics and Econometrics
2015, volume: 5, number: 4, pages: 406–429

SLU Authors

• Amuakwa Mensah, Franklin

  • Department of Economics, Swedish University of Agricultural Sciences
    

• Marbuah, George

  • Department of Economics, Swedish University of Agricultural Sciences
    

Global goals (SDG)

SDG8 Decent work and economic growth

UKÄ Subject classification

Economics

Publication identifier

• DOI: https://doi.org/10.1504/IJCEE.2015.072294

Permanent link to this page (URI)

https://res.slu.se/id/publ/64199