A Risk-based Assessment of Ghana Commercial Bank Limited

Abstract

Risk management is a very important concept for any business as most financial decisions revolve around the corporate cost of holding risk. This issue is particularly important to banks since risk constitutes their core business processes. This study assesses the risk profile of GCB to ascertain its soundness and conformity to international best practices. The study selects credit, liquidity, market and operational risks as dependent variables while size, NPLs ratio, capital adequacy and asset management are utilized as explanatory variables for the period of five years from 2007 to 2011. The regression results indicate that the size of bank does not influence any of the risks. Apart from credit risk which is influenced positively by the NPL ratio, all the other risks, show a negative relationship with NPL ratio. The capital adequacy has a negative relationship with credit and liquidity but a positive relationship with market and operational risks. Both debt-equity ratio and asset management establish a positive relationship with credit and operational risks, but a negative relationship with liquidity and market risks. Generally, the study revealed that GCB has a good risk profile in the face of challenging global economic and business environment. The Bank had adequate risk management structures to ensure sound management of financial and operational risks. These structures were also in line with internationally accepted principles for managing risks. The study recommends that the Bank adopts an integrated, enterprise-wide risk management approach, promoting a corporate culture that understands risk management and incorporate it into the broader corporate strategy.

Keywords: Risk, liquidity, capital adequacy, strategy, enterprise-wide risk management