Impact of Financial Risk Indicators on Banks’ Financial Performance in Ghana

Abstract

This research is to study the impact of some financial risk indicators on fifteen selected commercial banks’ in Ghana. The indication from the augmented Dickey-Fuller unit root test results show that the data series after first difference at the first order achieved stationarity. The analysis of the data revealed the existence of significant long run relationship between bank financial performance and the variables of financial risk in the banking sector. The granger causality test results reveal that there is unidirectional causality flowing from the variables of financial risk This suggest that the indicators of financial risk strongly and actively stimulate and improve the financial performance of banks in Ghana. The study recommends that bank managers should improve on the management of all the indicators of financial risk variables in order to improve on the achievement of the objective of the firm.

Do board characteristics moderate capital adequacy regulation and bank risk-taking nexus in Sub-Saharan Africa?

“…And as emphasized by Seid and Tumin (2013), the primary objective of capital regulation in the banking sector is to prevent managers and owners from taking excessive risks. Capital adequacy theory also suggests that banks should have enough funds to cater to any unforeseen circumstances that may arise in the course of bank operations (Zhongming et al ., 2019). The findings considering liquidity and credit risks support the capital hypothesis and the public interest view (Alam, 2012; Barth et al ., 2005).…”

“…Capital adequacy theory argues that banks should hold capital buffers to safeguard banks’ vulnerability to liquidity risk against panic withdrawal (Zhongming et al ., 2019). The main objective of capital regulation in the banking sector is to prevent managers and owners from taking excessive risks (Santomero, 1997).…”

“…However, achieving such a regulatory requirement is dependent on the effectiveness of the board. The preposition of capital adequacy theory is that the main objective of capital regulation in the banking sector is to prevent managers and owners from taking excessive risks (Kim, 2015; Zhongming et al ., 2019).…”