Applying the breaks to non-performing loans in Ghana
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 26 July 2021
Issue publication date: 11 August 2023
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
Acknowledgements
The authors acknowledge the Department of Economics, Central University, Accra. Ghana.
Citation
Amoah, A., Asiama, R.K. and Korle, K. (2023), "Applying the breaks to non-performing loans in Ghana", International Journal of Emerging Markets, Vol. 18 No. 8, pp. 1978-1993. https://doi.org/10.1108/IJOEM-03-2020-0287
Publisher
:Emerald Publishing Limited
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