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

A robust bank-based financial industry is a major player in the stability of an economy. This is demonstrated by the importance most countries place on macroeconomic decisions involving the banking sector. In 2017, the Ghana bank industry underwent a clean-up exercise to rehabilitate the industry's impaired operating environment due to the uncontrollably high rate of nonperforming loans and a deficient tier one capital base. To evaluate the soundness of the affected institutions, this study analysed the financial performance of UT Bank Ltd prior to the 2017 bank industry health check using financial ratios and the Z-score. A ten-year (2007-2016) annual financials were used for analyses. It was discovered that UT Bank's debt management policies were poor. This reflected in the leverage and risk management variable ratios, which were both unimpressive. Considering the results, it was apparent that UT Bank had problems honouring its debt obligation to creditors. The debt-to-equity and debt-to-asset ratios of 7.6 and 0.90, respectively, indicated a distressed condition. Credit management policies of UT Bank and other banks that were caught within similar difficulties in the industry must be immediately improved to protect customer deposits. As a policy recommendation, the bank industry's regulator (the Bank of Ghana) should strengthen its supervisory and monitoring roles to aid early detection of non-performing institutions. Additionally, this paper recommends that banks' statutory lending limitations be maintained at a 10% threshold for unsecured loans and a 25% level for secured loans of banks' net owned funds.