The Macro-economy and Non-Performing Loans in Ghana: A BVAR approach

Shuffield Seyram Asafo
2018 International Journal of Business and Economic Sciences Applied Research  
Purpose: The purpose of the paper was to estimate the interdependence between selected macroeconomic variables and non-performing loans in Ghana using a Bayesian Vector autoregressive approach. Design/methodology/approach: This paper used annual series from 2008-2017 which was interpolated into quarterly frequencies to estimate how macroeconomic shocks affects quality of loan portfolio using a Bayesian Vector Autoregressive approach. Our Bayesian VAR system satisfied the stability condition
more » ... e the inverse root polynomial is within the unit root circle hence our VAR system was deemed stable. The model was estimated at levels with 1 lag as indicated by the AIC and the SBIC Findings: The findings were that shocks to gross domestic product , consumer price index , credit to private sector, imports and monetary policy rate leads to an increase in the NPL ratio at varying magnitudes and quarters. On the other-hand a shock to government debt lead to a fall in the NPL ratio in the short-run but it rebounded later in the tenth quarter. Originality/value: This study concludes that the macroeconomic environment is a big influence on the performance of bank loan portfolio which translates into the NPLs. A shock to CPI seems to be highest in affecting the NPL ratio hence the Bank of Ghana should endeavour to keep a low inflation environment such that the policy rate will not be revised upwards which will put more strain on the _NPL ratio.
doi:10.25103/ijbesar.113.06 doaj:db0fda2aca04497785174e1fc21dd417 fatcat:ktwi5djxsrdolis3retegmqkv4