Impact Of Interest Margin On Non-Performing Loans: (Case Of Rural Banks)

ABSTRACT

The financial sector of Ghana witnessed what many described as “financial crisis” in the early part of 2017. Many financial institutions became insolvent stemming from high levels of non-performing loans in the financial sector. Ghana as a country is currently experiencing one of the worst financial crises the country has ever experienced since it became a Republic. So far, over seven (7) commercial, retail and investment banks in the country have been declared insolvent by the Bank of Ghana (BoG) leading to massive loss of jobs and financial investments which have so far cost the in the excesses of GH ¢ 12.7 billion of taxpayers’ money which could have been invested in social programmes and infrastructural projects to alleviate poverty (GNA, 2017). The Rural and Community Banking institutions in the country has not been left out of this mess with most of them being declared insolvent which has led to majority of their customers losing their savings (GNA, 2017). It is against this back drop that this study critically and carefully examined how certain factors interact with interest rate margin to influence NPL among rural banks in Ghana by employing a panel data analysis. The study found that both bank-specific variables and certain economic factors influence loan performance among rural banks in Ghana. The main factors that were identified to influence non-performing loans among rural banks in Ghana include interest rate, GDP, inflation, real effective exchange rate and loan growth