Investigating Micro and Macroeconomic Determinants of Credit Risk in Commercial Banks

Dvid K. Garr

Abstract


The study investigated microeconomic and macroeconomic factors that affect credit risk in commercial banks in developing economies using census data on Ghana for the period 1990 to 2010 employing panel root, co-integration and Fully Modified Ordinary Least Square Methods. Inflation, discount rate, Financial Sector Development 1 significantly influenced Credit Risk 1 at 5% significance level. Also, variables such as competition, discount rate, Financial Sector Development 1 and Financial Sector Development 2 significantly influenced Credit Risk 2 at 5% significance level. The study revealed that whenever there is increase in inflation, the discount rate, innovation and development in the financial sector, the ratio of loan loss provision to bank assets falls. Also, an increase in competition, discount rate, innovation and development in the financial sector may result in increase in the ratio of net interest income to bank assets.

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