This paper assessed risk management as a moderating variable between risk
exposure and a bank’s performance. A quantitative research methodology was
employed to collect secondary data from 20 licensed banks in Ghana from 2013 to
2022, giving a total of 200 observations for this study. The study employed the
dynamic panel System Generalized Method of Moments to assess the effect of risk
exposure on the bank’s performance in Ghana. The Generalized Method of Moments
was employed in this research to control the issues of endogeneity and unseen
heterogeneity. Secondly, the result from the moderating analysis showed that
risk management moderates the negative relationship between risk exposure and
the bank’s performance. The findings highlight the importance of strengthening the corporate governance structure to
moderate or enhance the relationship between risk management and the bank’s
performance. The study recommended that the banks in Ghana ought to be more
proactive in their assessment and management of the bank’s credit risk and liquidity
risk to mitigate their adverse effect on the bank’s performance.
References
[1]
Abbasi, A., & Malik, Q. A. (2015). Firms’ Size Moderating Financial Performance in Growing Firms: An Empirical Evidence from Pakistan. International Journal of Economics and Financial Issues, 5, 334-339.
[2]
Accornero, M., Cascarino, G., Felici, R., Parlapiano, F., & Sorrentino, A. M. (2018). Credit Risk in Banks’ Exposures to Non‐Financial Firms. European Financial Management, 24, 775-791. https://doi.org/10.1111/eufm.12138
[3]
Achou, T. F., & Tenguh, N. C. (2008). Bank Performance and Credit Risk Management. Master Degree Project, University of Skövde, School of Technology and Society.
[4]
Afriyie, H. O., & Akotey, J. O. (2012). Credit Risk Management and Profitability of Selected Rural Banks in Ghana. Catholic University College of Ghana.
[5]
Ahulu, H., & MacCarthy, J. (2020). Does Corporate Governance Structures Predict Firm’s Market Value? Empirical Evidence from Ghana. International Journal of Economics and Financial Issues, 10, 52-58. https://doi.org/10.32479/ijefi.8874
[6]
Andersen, L. B., Hager, D., Maberg, S., Naess, B., & Tungland, M. (2012). The Financial Crisis in an Operational Risk Management Context: A Review of Causes and Influencing Factors. Reliability Engineering and System Safety, 105, 3-12.
https://doi.org/10.1016/j.ress.2011.09.005
[7]
Apanga, M. A., Appiah, K. O., & Arthur, J. (2016). Credit Risk Management of Ghanaian Listed Banks. International Journal of Law and Management, 58, 162-178.
https://doi.org/10.1108/IJLMA-04-2014-0033
[8]
Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277-297. https://doi.org/10.2307/2297968
[9]
Ashby, S. G., & Diacon, S. R. (1996). Motives for Occupational Risk Management in Large UK Companies. Safety Science, 22, 229-243.
https://doi.org/10.1016/0925-7535(96)00017-3
[10]
Bank of Ghana (2019). Sustainable Banking Principles and Sector Guidance Notes. Bank of Ghana (BoG) Press Release.
[11]
Barbu, T. C., Olteanu, A. C., & Radu, A. N. (2008). The Necessity of Operational Risk Management and Quantification. Annals of Faculty of Economics 3, 661-667.
https://www.researchgate.net/publication/23691652_the_necessity_of_operational_ risk_management_and_quantification
[12]
Baron, R. M., & Kenny, D. A. (1986). The Moderator-Mediator Variable Distinction in Social Psychological Research: Conceptual, Strategic, and Statistical Considerations. Journal of Personality & Social Psychology, 51, 1173-1182.
https://doi.org/10.1037/0022-3514.51.6.1173
[13]
Basel Committee on Banking Supervision (BCBS) (2001). Principles for the Management and Supervision of Interest Rate Risk. Bank for International Settlements.
[14]
Basel Committee on Banking Supervision (BCBS] (2008). Principles for Sound Liquidity Risk Management and Supervision. Bank for International Settlements.
[15]
Bessis, J. (2011). Risk Management in Banking. John Wiley & Sons.
[16]
Blundell, R., & Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143.
https://doi.org/10.1016/S0304-4076(98)00009-8
[17]
Boahene, S. H., Dasah, J., & Agyei, S. K. (2012). Credit Risk Management and Profitability of Selected Banks in Ghana. Research Journal of Finance and Accounting, 3, 6-14.
[18]
Bond, S. R. (2002). Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice. Portuguese Economic Journal, 1, 141-162.
https://doi.org/10.1007/s10258-002-0009-9
[19]
Boone, A. L., Field, L. C., Karpoff, J. M., & Raheja, C. G. (2007). The Determinants of Corporate Board Size and Composition: An Empirical Analysis. Journal of Financial Economics, 85, 66-101. https://doi.org/10.1016/j.jfineco.2006.05.004
[20]
Centre for Disease Control and Prevention (CDC) (2006). CDC Unified Process Practice Guide: Risk Management.
https://www2.cdc.gov/cdcup/library/practices_guides/cdc_up_requirements_definition_practices_guide.pdf
[21]
Chatterjee, S., & Hadi, A. S. (2012). Regression Analysis by Example (5th ed.). John Wiley & Sons.
[22]
Chen, J., Chen, M., Chen, T., & Liao, W. (2009). Influence of Capital Structure and Operational Risk on Profitability of Life Insurance Industry in Taiwan. Journal of Modelling in Management, 4, 7-18. https://doi.org/10.1108/17465660910943720
[23]
Chernobai, A., Jorion, P., & Yu, F. (2011). The Determinants of Operational Risk in U.S. Financial Institutions. Journal of Financial and Quantitative Analysis, 46, 1683-1725.
https://doi.org/10.1017/S0022109011000500
[24]
Claessens, S., & Yurtoglu, B. B. (2013). Corporate Governance in Emerging Markets: A Survey. Emerging Markets Review, 15, 1-33.
https://doi.org/10.1016/j.ememar.2012.03.002
Ekinci, A. (2016). The Effect of Credit and Market Risk on Bank Performance: Evidence from Turkey. International Journal of Economics and Financial Issues, 6, 427-434.
[27]
Endaweke, M. (2015). Risk Management and Its Impact on Financial Performance of Commercial Banks in Ethiopia. Addis Ababa University.
[28]
Fadun, O. S., & Oye, D. (2020). Impacts of Operational Risk Management on Financial Performance: A Case of Commercial Banks in Nigeria. International Journal of Finance & Banking Studies, 9, 22-35. https://doi.org/10.20525/ijfbs.v9i1.634
[29]
Felix, A. T., & Claudine, T. N. (2008). Bank Performance and Credit Risk Management. Unpublished Masters Dissertation, University of Skövde.
[30]
Flannery, M. J., & Hankins, K. W. (2013). Estimating Dynamic Panel Models in Corporate Finance. Journal of Corporate Finance, 19, 1-19.
https://doi.org/10.1016/j.jcorpfin.2012.09.004
[31]
Freeman, R. E. (1984). Strategic Management: A Stokcholder Approach. Pitman.
[32]
Gallati, R. (2003). Risk Management and Capital Adequacy. McGraw Hill Professional.
[33]
Gravetter, F. J., & Wallnau, L. B. (2014). Introduction to the t Statistic. In Essentials of Statistics for the Behavioral Sciences (p. 252). Cengage Learning.
[34]
Greuning, H. V., & Bratanovic, S. B. (2003). Analyzing Banking Risk: A Framework for Assessing Corporate Governance and Risk Management. World Bank Publications.
[35]
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. The Romanian Economic Journal, 14, 61-87.
[36]
Habib, S., Masood, H., Hassan, T. S., Mubin, M., & Baig, U. (2014). Operational Risk Management in Corporate and Banking Sector of Pakistan. IISTE Journal, 4, 58-66.
https://doi.org/10.2139/ssrn.2663415
[37]
Hess, C. (2011). The Impact of the Financial Crisis on Operational Risk in the Financial Services Industry: Empirical Evidence. The Journal of Operational Risk, 6, 23-35.
https://doi.org/10.21314/JOP.2011.087
[38]
Hudson, R., Colley, A., & Largan, M. (1998). Treasury Management (3rd ed.). The Chartered Institute of Bankers.
[39]
Isanzu, J. S. (2017). The Impact of Credit Risk on Financial Performance of Chinese Banks. Journal of International Business Research and Marketing, 2, 14-17.
https://doi.org/10.18775/jibrm.1849-8558.2015.23.3002
[40]
Jaccard, J., Turrisi, R., & Wan, C. K. (1990). Interaction Effects in Multiple Regression Analysis. Sage.
[41]
Jaiye, O. (2009). A Critical Review of the Changing Operating Environment in the Nigerian Financial Services Industry: Implications for Risk. Journal of Contemporary Research in Business, 6, 159-184.
[42]
Kaaya, I., & Pastory, D. (2013). Credit Risk and Commercial Banks Performance in Tanzania: A Panel Data Analysis. Research Journal of Finance and Accounting, 4, 55-62.
[43]
Kolapo, T. F., Ayeni, R. K., & Oke, M. O. (2012). Credit Risk Management and Commercial Banks’ Performance in Nigeria: A Panel Model Approach. Australian Journal of Business and Management Research, 2, 31-38.
https://doi.org/10.52283/NSWRCA.AJBMR.20120202A04
[44]
Konovalova, N., Kristovska, I., & Kudinska, M. (2016). Credit Risk Management in Commercial Banks. Polish Journal of Management Studies, 13, 90-100.
[45]
Lehn, K., Patro, S., & Zhao, M. (2004). Determinants of the Size and Structure of Corporate Boards: 1935-2000. Working Paper, University of Pittsburgh.
https://doi.org/10.2139/ssrn.470675
[46]
Love, I. (2011). Corporate Governance and Performance around the World: What We Know and What We Don’t. The World Bank Research Observer, 26, 42-70.
https://doi.org/10.1093/wbro/lkp030
[47]
Muriithi, J. G. (2016). Effect of Financial Risk on Financial Performance of Commercial Banks in Kenya. PhD Thesis, Jomo Kenyatta University of Agriculture and Technology.
http://ir.jkuat.ac.ke/bitstream/handle/123456789/2376/jane%20gathiga%20muriithi%20phd% 20finanace%20thesis%202016.pdf?sequence=3&isallowed=y
[48]
Muriithi, J. G., & Waweru, K. M. (2017). Operational Risk, Bank Size, and the Financial Performance of Commercial Banks in Kenya. Journal of Finance & Banking Studies, 6, 39-50. https://doi.org/10.20525/ijfbs.v6i3.691
[49]
Muriithi, J. G., Waweru, K. M., & Muturi, W. M. (2016). Effect of Credit Risk on Financial Performance of Commercial Banks Kenya. IOSR Journal of Economics and Finance, 7, 72-83. https://doi.org/10.9790/5933-0704017283
[50]
Mwangi, G. (2012). The Effect of Credit Risk Management on the Financial Performance of Commercial Banks in Kenya. Master’s Dissertation, University of Nairobi.
[51]
Nair, A., & Fissha, A. (2010). Rural Banking: The Case of Rural and Community Banks in Ghana, Agricultural and Rural Development. Discussion Paper No. 48, The World Bank. https://doi.org/10.1596/27725
[52]
Namasake, W. K. (2016). The Effect of Market Risk on the Financial Performance of Commercial Banks in Kenya. Doctoral Dissertation, University of Nairobi.
[53]
Nguyen, T. N., Vu, N. H., & Le, H. T. (2017). Impacts of Monetary Policy on Commercial Banks’ Profits: The Case of Vietnam. Asian Social Science, 13, 32-40.
https://doi.org/10.5539/ass.v13n8p32
[54]
Ofori-Abebrese, G., Pickson, R. B., & Opare, E. (2016). The Effect of Bank Specific Factors on Loan Performance of HFC Bank in Ghana. International Journal of Economics and Finance, 8, 185-192. https://doi.org/10.5539/ijef.v8n7p185
[55]
Olamide, O., Uwalomwa, U., & Ranti, U. O. (2015). The Effect of Risk Management on Bank’s Financial Performance in Nigeria. Journal of Accounting and Auditing, 2015, Article ID: 313679. https://doi.org/10.5171/2015.313679
[56]
Oleiwi, A. T., Ali, M., Jassim, S. H., Nadhim, M. H., Gueme, G. M., & Bujang, N. (2019). The Relationship between Credit Risk Management Practices and Profitability in Malaysian Commercial Bank’s. International Journal of Engineering and Advanced Technology, 8, 53-59. https://doi.org/10.35940/ijeat.E1007.0585C19
[57]
Opoku-Adarkwa, R. (2011). Risk Management and Bank Performance: A Case Study of First Atlantic Merchant Bank Ghana Limited (FAMBL). Doctoral Dissertation, Kwame Nkrumah University of Science and Technology.
[58]
Otiemo, S., Nyagol, M., & Onditi, A. (2016). Relationship between Credit Risk Management and Financial Performance: Empirical Evidence from Microfinance Banks in Kenya. Research Journal of Finance and Accounting, 7, 115-142.
[59]
Owusu, G. M., Saat, N. A. M., Suppiah, S. D. K., & Siong, H. L. (2017). IFRS Adoption, Institutional Quality and Foreign Direct Investment Inflows: A Dynamic Panel Analysis. Asian Journal of Business and Accounting, 10, 43-75.
[60]
Pandey, D. N. (2007). Multifunctional Agroforestry Systems in India. Current Science, 92, 455-463.
[61]
Park, K., & Jain, S. (2014). Hospitality Finance and Managerial Accounting Research: Suggesting an Interdisciplinary Research Agenda. International Journal of Contemporary Hospitality Management, 26, 751-777.
https://doi.org/10.1108/IJCHM-12-2013-0554
[62]
Patel, D. P. (2015). Risk Management: A Study of Selected Urban Co-Operative Banks in Gujarat.
[63]
Rajagopalan, N., & Zhang, Y. (2008). Corporate Governance Reforms in China and India: Challenges and Opportunities. Business Horizons, 51, 55-64.
https://doi.org/10.1016/j.bushor.2007.09.005
[64]
Raykov, T., & Marcoulides, G. A. (2006). On Multilevel Model Reliability Estimation from the Perspective of Structural Equation Modeling. Structural Equation Modeling, 13, 130-141. https://doi.org/10.1207/s15328007sem1301_7
[65]
Rivard, R. J., & Thomas, C. R. (1997). The Effect of Interstate Banking on Large Bank Holding Company Profitability and Risk. Journal of Economics and Business, 49, 61-76. https://doi.org/10.1016/S0148-6195(96)00041-0
[66]
Santika, E., Fakhrughozy, M. H., Nur, W. M., & Lestari, H. S. (2022). Effect of Operational Risk on Financial Performance in Banking Industry IDX. Jurnal Ekonomi, 27, 123-137. https://doi.org/10.24912/je.v27i1.915
[67]
Schmit, J. T., & Roth, K. (1990). Cost Effectiveness of Risk Management Practices. Journal of Risk and Insurance, 57, 455-470. https://doi.org/10.2307/252842
[68]
State Bank of Pakistan (SBP) (2003). Risk Management: Guidelines for Commercial Banks & DFIs. State Bank of Pakistan. http://www.sbp.org.pk/about/riskmgm.pdf
[69]
Tabachnick, B. G., & Fidell, L. S. (1996). Using Multivariate Statistics (3rd ed.). Harper Collins.
[70]
Tassew, A. W., & Hailu, A. A. (2019). The Effect of Risk Management on Financial Performance of Commercial Banks in Ethiopia. Financial Studies, 23, 25-38.
[71]
Tchamyou, V. S., Erreygers, G., & Cassimon, D. (2019). Inequality, ICT and Financial Access in Africa. Technological Forecasting and Social Change, 139, 169-184.
https://doi.org/10.1016/j.techfore.2018.11.004
[72]
Von Tamakloe, B., Boateng, A., Mensah, E. T., & Maposa, D. (2023). Impact of Risk Management on the Performance of Commercial Banks in Ghana: A Panel Regression Approach. Journal of Risk and Financial Management, 16, Article 322.
https://doi.org/10.3390/jrfm16070322
[73]
Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the Dynamics of Internal Corporate Governance. Journal of Financial Economics, 105, 581-606.
https://doi.org/10.1016/j.jfineco.2012.03.005
