Impact of Risk Management on the Performance of Commercial Banks in Ghana: A Panel Regression Approach

Author:

Von Tamakloe Bismark1,Boateng Alexander2,Mensah Eric Teye1,Maposa Daniel3ORCID

Affiliation:

1. Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology (KNUST), Kumasi P.O. Box KS 9265, Ghana

2. Department of Biostatistics, University of the Free State, Bloemfontein 9300, South Africa

3. Department of Statistics and Operations Research, University of Limpopo, Polokwane 0727, South Africa

Abstract

The financial sector is an integral part of the economy, playing a vital role in the overall economic development of a nation, but commercial banks in this sector face a myriad of risks. This has made understanding the impact of risk management on bank performance crucial. This study sought to examine the effect of risk management on the performance of commercial banks in Ghana. The study used a quantitative research approach, relying on secondary data from the yearly financial statements of the selected banks. Seven commercial banks were purposively sampled. According to the 2017 Ghana Banking Survey, the seven commercial banks selected represent more than 50 percent of Ghana’s financial market by proportion of industrial deposits, which was a criteria for selecting the seven banks. The results of the study showed that of the four types of risks examined vis-à-vis credit risk, operational risk, liquidity risk, and market risk, only operational risk was found to exert a significant influence on bank performance. Operational risk accounted for 99.24% of the variability in bank performance. Furthermore, it was observed that total risk management had a significant impact on bank performance, explaining 74.74% of the variance in bank performance. Since operational risk appears to exert far more influence on bank performance in Ghana than any other risk factor, it is recommended that banks, regulators, and policymakers place more emphasis on curbing operational risks when designing their risk management programmes, as this particular risk, among all the other risk types examined, seems to be the one that exerts the greatest influence on banking performance.

Publisher

MDPI AG

Subject

Finance,Economics and Econometrics,Accounting,Business, Management and Accounting (miscellaneous)

Reference27 articles.

1. Credit risk management and profitability of rural banks in the brong ahafo region of ghana;Afriyie;Management,2013

2. Liquidity risk and performance of banking system;Arif;Journal of Financial Regulation and Compliance,2012

3. Basel Committee on Banking Supervision (2000). Principles of the Management of Credit Risk, Bank for International Settlements.

4. Bank of Ghana (2019). Sustainable Banking Principles and Sector Guidance Notes.

5. Bessis, Joel (2011). Risk Management in Banking, John Wiley & Sons.

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