The effects of macroeconomic variables on non-performing loans of commercial banks in Ghana

Abstract

This research delved into the impact of the Covid-19 pandemic on the Non Performing Loan (NPL) rates of commercial banks in Ghana. Employing Covid-19 annual recorded rates as a moderating variable, the study scrutinized the interaction with key macroeconomic indicators: Gross Domestic Product Growth rates, Exchange rates, Unemployment rates, Interest rates and Inflation rates. The investigation focused on NPL rates compiled from nine commercial banks listed on the Ghana Stock Exchange with a minimum operational history of seven years in Ghana, spanning from 2010 to 2022. Employing statistical tools to ensure the dataset adheres to assumptions, including normality, multicollinearity, and autocorrelation tests, the study utilized Ordinary Least Squares (OLS) Regression. Employing a quantitative research approach and a Quasi-experimental research design, the analysis revealed an inverse moderating effect of Covid-19 on the relationship between GDP growth rates and NPL rates, deviating from prior studies. Notably, the study highlighted a heightened impact on non-performing loans during the presence of Covid-19, indicating a potential surge in NPL rates. The moderation of Covid-19 on exchange rates suggested a substantial influence on currency values, significantly affecting the ability of entities to meet loan obligations. The study also identified a positive relationship between inflation rates and non-performing loan ratios. This signified that fluctuations in inflation may directly influence the stability and performance of loans within the financial system, a revelation of considerable consequence.