۱- Introduction

۲- Stylized facts

۳- Theoretical framework

۴- Empirical literature

۵- Empirical strategy

۶- Results

۷- Conclusion

References

Abstract

Purpose – The sharp rise in non-performing loans (NPLs) with its associated effect on financial institutions in Ghana has become very alarming. This has led to the collapse of distressed institutions and associated repercussions such as loss of private savings, investments, businesses and livelihoods. The purpose of this paper is to test the hypothesis that the monetary policy rate can be used to influence NPLs in Ghana.
Design/methodology/approach – Using quarterly data spanning from 2000 to 2016, the authors used the autoregressive distributed lag econometric approach to estimate the effect of monetary policy on the percentage growth of NPLs in Ghana. The results are presented for both short-run and long-run periods.
Findings – In the short run, the authors find evidence of no statistically significant effect of monetary policy on the percentage growth of NPLs. However, in the long run, the authors find a statistically significant effect of monetary policy on the percentage growth of NPLs.
Practical implications – The authors recommend that policymakers should focus on building a strong financial environment, so that monetary policy can be used to influence the commercial bank’s interest rate. In effect, this will help reduce the growth of NPLs, reduce risk and attract competitors into the financial market, increase asset base, increase credit to support viable ventures and subsequently boost economic growth in Ghana.
Originality/value – The paper shows its value by using quarterly data whereas most literature have considered annual data. Also, the paper includes a policy variable measured by the Monetary Policy Rate (MPR) as the key variable of interest which is normally not the case with most studies.

Introduction

In most developing countries, such as Ghana, a key problem that has beset the main sectors of the economy has been access to loanable funds. Many strategic financial institutions had been established to help ameliorate this problem by making loanable funds available to support both the private and the public sectors. However, with the rise in the rate of non-performing loans (NPLs), a sizeable number of these financial institutions became distressed. For banks, in the last quarter of 2017, this problem – the rise in the rate of NPLs – has contributed to the taking over of Capital and UT Banks by the Ghana Commercial Bank. More recently (i.e. first quarter of 2018) Unibank has been taken over by the Bank of Ghana and given to Klynveld Peat Marwick Goerdeler (KPMG) to manage. Again, in the second quarter of 2018, five banking institutions were collapsed and consolidated into one bank by the Central Bank of Ghana for various reasons. A major causal factor of these infringements was rising levels of NPLs. For microfinance or deposit/savings financial institutions, the Bank of Ghana since 2008 has moved to close a greater number of such distressing institutions (Belnye, 2012). Given the absence of deposit insurance in Ghana, the severity of the repercussions of such fold-ups on savings, businesses and livelihood cannot be overemphasized (Boateng et al., 2016).