Financial Performance Analysis of Distressed Banks in Ghana: Exploration of the Z-score

13 Pages Posted: 4 Feb 2021

Date Written: October 19, 2019


A robust bank-based financial industry is a major player in the stability of an economy, as such; the macroeconomic decisions of most countries revolve around the financial sector. In 2017, the Ghana financial industry witnessed a cleanup exercise due to the impaired conditions under which it operated and therefore there was the need for the enforcement of those policy measures. The sector was inundated with nonperforming loans coupled with the weakling nature of tier one capital of most banks. To ascertain how grounded certain affected banks were, this study used financial ratios aided by the Z-score to analyse the financial performance of UT Bank prior to the 2017 bank industry health check in Ghana. Annual financials over a ten-year period (2007-2016) were used. It was realised that debt management practices of UT Bank were unimpressive. This was observed in the poor leverage and risk management variable ratios. Considering the results, UT Bank clearly had difficulty obliging to customers’ maturing debts. The average mean values of debt-to-equity and debt-to asset of 7.6 and 0.90 respectively pointed to a case of distress. The credit management practices of individual banks in the industry need resuscitation. As a policy recommendation, the regulator of the bank industry should tighten up its supervisory and monitoring powers to help in detecting early signs of non-performing banks. The study further proposes that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percent for secured loans of net owned funds of banks.

Keywords: Financial, Performance, Distress, Bank, Z-Score

JEL Classification: E58, G01, G11, G18, G21, G28, G33, G34, H63

Suggested Citation

Matey, Juabin, Financial Performance Analysis of Distressed Banks in Ghana: Exploration of the Z-score (October 19, 2019). Available at SSRN: or

Juabin Matey (Contact Author)

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