Nonperforming loans and bank profitability: evidence from an emerging market

Purpose - The purpose of this paper is to investigate the bank-specific and macroeconomic determinants of nonperforming loans (NPLs) as well as the impact of NPLs on bank profitability. Design/methodology/approach - Using a sample of 22 Ghanaian banks over the period 2005-2010, the study employs a fixed effect panel model in estimating three different empirical models. Findings - The study finds new evidence of bank-specific factors as well as macroeconomic factors determining NPLs. Inflation and industry concentration are not significant in determining NPLs, although both are positively related to NPLs. Practical implications - The findings of this study have important implications for policy makers and bank managers. Originality/value - The paper offers significant value in shaping and improving the banking sector of emerging markets.