Financial sustainability and credit risk: evidence from listed banks in Ghana

Abstract This study investigates how credit risk factors influence the financial sustainability of Ghanaian banks by analyzing a ten-year panel dataset from the annual reports of nine listed banks. The analysis employs a generalized least squares regression to evaluate how key credit risk indicators, namely the non-performing loan ratio, loans-to-assets ratio, and deposits-to-assets ratio, affect financial sustainability metrics such as net interest margin and the cost efficiency ratio. To ensure robust results, instrumental variable techniques and system generalized method of moments estimation are also used to address potential endogeneity. The results consistently indicate that a higher NPLR is associated with lower financial sustainability across all estimation methods. Furthermore, the findings suggest that aggressive lending can undermine sustainability, whereas strong deposit mobilization (high DTAR) has a stabilizing effect. Overall, this study provides robust evidence and valuable perspectives, giving regulators and financial institutions a deeper understanding of how credit risk management impacts the financial sustainability of banks in Ghana. It also informs strategies to strengthen the resilience of the banking sector.