Wits Business School (ETDs)

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    The impact of credit risk on the financial performance of commercial banks in Lesotho
    (University of the Witwatersrand, Johannesburg, 2024) Ramphoko, Lepapa Gerard; Mudavanhu, Blessing
    Commercial banks play a crucial role in economic development by allocating financial resources from surplus to deficit units, thereby creating value through credit extension. Therefore, the financial performance of commercial banks across the globe is of utmost importance to all the stakeholders. This study therefore determines the impact of credit risk on the financial performance of commercial banks in Lesotho. The measurement of the study variables includes the use of Return on Equity (ROE) for bank’s financial performance and Capital to Risk-Weighted Assets Ratio (CRWAR), Asset Quality Ratio (AQR), Loan Loss Provision Ratio (LLPR), and Loans and Advances Ratio (LAR) for credit risk assessment. The study adopts a quantitative research design to analyze panel data collected from the audited financial statements of four commercial banks in Lesotho spanning for 2012-2021 using the panel least squares regression model. The results from the fixed effects estimation technique revealed an inverse relationship between the two credit risk measures: CRWAR and LAR with bank performance (ROE), emphasizing the importance of prudent credit risk management practices. Conversely, LLPR had a positive relationship with bank performance (ROE), highlighting the role of adequate loan loss provisions in enhancing bank profitability. Based on these findings, recommendations are proposed for the effective management of credit risk in commercial banks in Lesotho. First, emphasis is placed on improving LLPR to enhance ROE, emphasizing the need for prudent credit risk assessment, portfolio diversification, and effective collateral policies. Lastly, attention is drawn to liquidity management, considering the observed negative impact of LAR on ROE. Banks are urged to prioritize liquidity risk management, maintaining adequate liquidity buffers, and implementing strategies to address liquidity shortfalls.
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    Financial Risk in Cross-Border Mergers and Acquisitions for Southern African Development Community Banks
    (University of the Witwatersrand, Johannesburg, 2024) Makhura, Sedise; Totowa, Jacques
    This study investigates the effect of cross-border mergers and acquisitions on financial risk and bank performance in the Southern African Development (SADC) region, where economic uncertainties are prevalent. Focusing on credit, market, and liquidity risks, the analysis draws on data across 14 bank cross-border mergers and acquisitions between 2002 and 2018. The fixed effects model used in this study revealed statistically significant relationships between performance, measured as the principal component variable of return on equity (ROE) and return on earning assets (ROEA); and specific financial risk factors, particularly non- performing loans to total loans as the credit risk proxy and net loans to total assets as the liquidity risk proxy. Firm size also demonstrated a significant relationship to performance. Although the aggregate financial risk variable did not present any statistically significant impact on performance, liquidity risk emerged as the decisive factor in determining bank performance. An increased loan-to-asset ratio was associated with deteriorated bank performance, highlighting the importance of managing liquidity risk effectively. These findings suggest that banks in the SADC region involved in cross-border mergers should reassess their risk management strategies and prioritise liquidity and credit risk management to improve performance and ensure operational sustainability in the SADC region.
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    Determinants of credit risk on residential mortgage loans in South Africa
    (2021) Mbulana, Alikho
    Residential mortgages are an important asset class for banks as these assets provide the majority of bank’s income. By the nature of issuing loans to customers, this asset class also presents the greatest risk to the banks and as a result, banks need to constantly evaluate and review credit risk in order to ensure dynamic response strategies that curb losses and achieve sustainable profits. This study aims to investigate factors influencing credit risk on residential mortgage loans in South Africa. A regression analysis was conducted to capture the influence of both macroeconomic and bank specific factors on loans that have been in arrears for less than 89 days and on loans that have been in default for more than 90 days; using monthly data from an undisclosed bank over a period of eight years, 2010 to 2018. The results show that Housing Price Index, Unemployment, Household Disposable Income, Bank’s Capitalization and Operational Efficiency are the only significant determinants for non-performing residential mortgage loans that are less than 89 days. Credit Quality, Inflation, Unemployment, Household Disposable Income, Bank’s Capitalization, Operational Efficiency and are the main determinants of the non-performing residential mortgage loans greater than 90 days