Assessing the asymmetric and nonlinear effects of economic policy uncertainty on financial soundness in Ghana

The study seeks to investigate the impact of economic policy uncertainty (EPU) on the financial soundness of the banking industry of Ghana. The study used time series data for economic policy uncertainty and financial soundness for a period covering from January 2006 to April 2023 with 208 observations for its analyses. The study employed the quantile regression method for the regression. The results of the study indicated that economic policy uncertainty has a negative effect on the financial soundness of the Ghanaian banking industry and is statistically significant at the 1% level across all quantiles. Moreover, the results revealed a positive effect of the interaction term between EPU and non-performing loans which is also statistically significant at the 1% level. The study recommends that policymakers should prioritize the cultivation of clear communication and policy formulation consistency to establish a more foreseeable economic milieu. It is also recommended that financial institutions operating in Ghana enhance their risk management practices and carefully evaluate the potential benefits of diversifying their portfolios and business models.