Credit risk, capital structure and lending decisions of banks in Ghana

Mohammed Amidu, Robert Hinson

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)

Abstract

Risk management is a very important concept for any business as most financial decisions revolve around the corporate cost of holding risk. This issue is particularly important to banks since risk constitutes their core business processes. This paper examines how credit risk affects a bank's capital structure, profitability and lending decisions. The study employs panel regression analysis to investigate the relationship between credit risk exposure and bank capital structure, profitability and lending decisions. The results indicate that less than 1% of Ghanaian banks are exposed to credit risk, and that more than 86% of their assets are financed by debts. The banks' average lending rate is around 28%. The results also show that capital structure (equity to total assets) of banks is positively related to banks' credit risk, profitability and risk and negatively related to banks' size, liquid assets and lending.

Original languageEnglish
Pages (from-to)93-101
Number of pages9
JournalBanks and Bank Systems
Volume1
Issue number1
Publication statusPublished - 2006

Keywords

  • Banks
  • Capital structure
  • Ghana
  • Lending
  • Risk management

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