The Nexus between Financial Literacy and Loan Defaults and the Financial Outcome of Commercial Banks: Empirical Evidence from Ghana

Abstract

This study investigates the nexus between financial literacy and loan repayment performance within the Ghanaian commercial banking sector. Grounded in a positivist epistemological stance and an objectivist ontology, the research utilizes a descriptive research design to examine the determinants of credit default. The study population comprised all 23 licensed commercial banks in Ghana as of 2026. Using a purposive sampling technique, 19 banks were selected, from which data were retrieved via structured questionnaires from 99 frontline banking professionals, representing an 82.5% response rate. The demographic profile reveals a mature and highly experienced workforce, with 77% of respondents possessing over a decade of institutional tenure and 87.9% holding at least a Bachelor’s degree. Preliminary results indicate a significant male majority (60.4%) in credit-related roles, with the primary workforce concentrated in the 31–40 age cohort (51.6%). Data reliability was confirmed through Cronbach’s Alpha coefficients exceeding the 0.70 threshold. The analytical strategy employed SPSS (Version 27), utilizing descriptive statistics, Exploratory Factor Analysis (EFA), and Pearson’s correlation coefficients to test the relationships between financial literacy dimensions (knowledge, behavior, and attitude) and loan default rates. The study findings provide empirical evidence for the role of financial literacy as a critical tool for enhancing credit management and institutional stability. The research concludes with evidence-based recommendations for policy interventions aimed at mitigating loan defaults through targeted borrower education and refined credit risk frameworks.