Effect of Credit Risk Management on Financial Performance of Banks: An Evidence from Agricultural Development Bank Limited, Bolgatanga, Ghana

• Main Authors: Isaac Christopher Otoo, Mboda Osman Kariuamah, Andzie Tahir Ahmed
• Format: Article
• Language: English
• Published: Africa Development and Resources Research Institute (ADRRI) 2019-01-01
• Series: Journal of Arts and Social Sciences
• Online Access: https://journals.adrri.org/index.php/adrrijass/article/view/466

The purpose of the paper was to analyse the effects of credit risk management on performance and to establish if there exists any relationship between the credit risk management indicators by use of CAMEL determinants and performance of banks in the banking industry in Ghana. A descriptive case study research design was undertaken in this study and this was facilitated by the use of secondary data which was obtained from the financial statements Agriculture Development Bank (Bolgatanga branch) for the period 2012 to 2016. The study used multiple regression analysis in the analysis of data and the findings have been presented in the form of tables and regression equations. The study also found that there is a strong impact of CAMEL components on the performance of the bank with the R. values being lowest at 0.701 in 2016 and highest at 0.974 in 2015 implying that in 2016 CAMEL components could explain 70.1 percent variations in performance and 97.4 percent variations in performance in 2015. The study also established that asset quality, management efficiency and liquidity had weak relationship with financial performance (ROE) whereas capital adequacy and earnings have strong relationship with financial performance. This study concludes that CAMEL model can be used as a proxy for credit risk management. The study thus recommends that banks should also try to keep their operational cost low as this negates their profits margin so leading to low performance. This is revealed by the strong effect of earnings on performance.