Bank Specific Factors And Non-performing Loans of Commercial Banks In Liberia

Published: 2 April 2024| Version 1 | DOI: 10.17632/8smtb27h5j.1
Simeon Vah Wahpoe


This study investigates the nexus between bank-specific factors and nonperforming loans (NPLs) in Liberia's commercial banks through a retrospective panel study design, employing a quantitative approach based on the Moral Hazard Theory. Targeting the nine listed commercial banks in Liberia, the study focuses on key variables: return on equity (ROE), return on assets (ROA), bank cost efficiency, and bank income diversification. Data were sourced from certified audited records, and descriptive statistics, including correlation analysis via SPSS software, were applied. Results reveal a significant negative correlation (r = -0.957, p = 0.043) between ROE and NPLs at LBDI Bank. Conversely, no significant associations are found between ROA, bank cost efficiency, and bank income diversification with NPLs in commercial banks. The study underscores the centrality of ROE in influencing NPLs and recommends future research to incorporate a broader spectrum of both bank-specific and economic factors over an extended study period of 10-15 years for a comprehensive understanding of nonperforming loans in Liberia's commercial banks.


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The retrospective panel studies design was adopted as the most appropriate research design to answer the research questions. Retrospective panel research design allows the investigator to formulate ideas about possible associations, and investigates potential relationships with a mindset that causal statement should not be given way to. Since this study sought to determine the internal factors that led to non-performing loans of commercial banks in Liberia and their relationship with the dependent variable (NPLs), it was determined through a retrospective panel study design to answer the research questions. In this study design, the outcome of interest appeared before the study began and the results became real. The current study design adopted the use of secondary data from certified sources that have been tested (audited) and found to be accurate by both management actors and external auditor. The researcher collected the data from financial statements of the sample banks and the annual reports from the Central Bank of Liberia covering four banking years (2017 to 2020). The study therefore focused on 5 of the 9 commercial banks in Liberia namely: 1). Ecobank, 2). GT Bank, 3). International Bank, 4). Liberia Bank for Development & Investment, and 5). Access Bank. Retrospective record review (RRR) was used as a data collection method to evaluate document reviews. Similarly called retrospective chart review (RCR), the method is used when an investigator wants to look "backward" in time to events that have already occurred to gather information that answer one or more research questions (Center for Disease Control and Prevention (CDC), 2018). The researcher identified relevant administrative records containing useful data that were used for answering the study questions. These data were carefully arranged by the researcher so as to derive at the study objectives in keeping with the operational definitions. Because retrospective panel study research does not manipulate the independent variable, researchers are especially careful when drawing conclusions from study's findings. The quality of the study was therefore depended heavily on the integrity of the record and the data presented. Data analysis is the process of manipulating data to bring order to it by organizing data into patterns, categories, and basic descriptive units. Preparation for data analysis include editing, coding and computer analysis (Amin, 2005). The study used panel data from five (5) commercial banks in Liberia from the banking years 2017- 2020. The SPSS software package was used as a tool for analysis. Objectives 1, 2, 3 and 4 were analyzed using correlation analysis.


Bugema University