Determinants of Financial Failure in Ghana: Probit Analysis of UniBank Loan Defaults

Most countries in the world were negatively impacted by the USA financial crisis of 2008. In 2010-2012 people have seen economic failures of Greece and Iceland impact the European Union and other countries. Interestingly, the factors which caused the financial industry failures in these developed nations were not identical; nonetheless, the results were similar: severe economic recession. It is important to better understand the financial predictors and best-practices for developed and emerging nations in other countries, particularly outside USA and the European Union - namely Africa. Businesses in Ghana (and the continent of Africa) make a significant economic contribution to the global Gross Domestic Product (GDP), which is important to study because their financial activities impact many countries, since our global economic systems have become interconnected. This study examined a large bank in Ghana (a country located on the north-west coast of Africa, to empirically identify problems and to propose solutions to improve financial policies associated with Small-to-Medium-Sized-Enterprise (SME) industry - who are the key contributors to national GDP. A statistically significant probit logistic model was developed using a mixed-method approach which also included a qualitative SWOT analysis. The results indicated that the critical socio-economic success factors of financial success versus failure for SME businesses were: age of owners, company size, total income, and quality of hired labour. The secondary factors were institutionally-related: organisational structure, credit policies, inadequate technology platform management, ineffective monitoring of SMEs, and weak economic recovery strategies. Recommendations were made to improve national economic policies for the banking industry in Ghana, based on this model.