Credit risk management, bank-specific factors, and financial performance of banks: Insights from an emerging economy

Depository institutions play a critical role in promoting financial stability and economic growth by mobilizing savings and allocating credit across sectors. As key intermediaries, commercial banks rely on deposits and lending activities to generate income while supporting broader economic development. This study examines how credit risk management and bank-specific factors influence the financial performance of commercial banks in Ghana, using an audited annual financial dataset that covers ten years from 2013 to 2022, yielding 110 bank-year observations. The findings show that capital adequacy and average lending rates significantly enhance financial performance, while non-performing loans, cost-efficiency ratios, and loan-to-deposit ratios exert negative but significant effects. These results highlight the need for banks to adopt a balanced approach to managing credit risk, operational efficiency, liquidity, and capital buffers to sustain long-term performance in a dynamic financial environment. The study provides several practical implications for banks, regulators, and policymakers. Banks should strengthen credit appraisal systems, improve borrower monitoring, and implement early-warning mechanisms to minimise loan defaults. Investments in operational efficiency and technological systems are crucial for managing costs and improving performance. Regulators, in turn, should reinforce supervisory frameworks that promote adequate capitalization, sound credit risk practices, and sustainable liquidity management across the sector. These insights support more resilient banking operations and greater financial stability within Ghana's evolving financial landscape. This study also offers significant originality and methodological value by providing one of the few comprehensive empirical analyses that jointly assess credit risk indicators and bank-specific factors over a decade. Unlike studies that treat these variables independently or rely on narrow proxies, this research employs consistent measurement techniques using audited financial statements to enhance reliability. Overall, the study advances knowledge on bank performance determinants and offers evidence-based guidance for effective risk management and strategic decision-making in Ghana's banking sector. • Examines credit risk and bank-specific factors affecting Ghanaian banks’ performance (2013–2022). • Capital adequacy and lending rates significantly enhance bank financial performance. • Non-performing loans, cost inefficiency, and high loan-to-deposit ratios reduce bank performance. • Effective credit risk, liquidity, efficiency, and capital management sustain bank performance. • Provides policy-relevant evidence and rare empirical insights from Ghana’s banking sector.