Effect of Credit Risk on Odds of Occurrence of Financial Crisis: Evidence from Ghana

Abstract

Purpose: Credit risk has been stated in extant literature to be one of the predictors of financial crisis. Nevertheless, stakeholders of Ghana’s financial sector seemed to pay less attention to the possible relationship between credit risk and financial crisis; possibly due to the limited empirical studies in this area. This study, therefore, assessed the effect of credit risk on the odds of occurrence of financial crisis among commercial banks in Ghana, employing annual data for the period 2010 – 2019 from 22 commercial banks selected using the criterion sampling technique. Methodology: The study was quantitative in nature, and employed the explanatory design. The binary logistic regression technique was used for the estimation of the relationship between credit risk and financial crisis. Findings: It was revealed that credit risk has a significantly negative effect on the odds of occurrence of financial crisis among commercial in Ghana. Recommendation: It was therefore recommended that management of commercial banks in Ghana pay attention to bank clients and their demands, level of risk to take, as well as risk management techniques, to ensure that the right decisions are taken at all times.