Abstract
The paper examines determinants of banks performance in the Ghanaian banking industry for the period 2000-2010 using trend graphs, equations and panel data estimation techniques. Three different measures of performance are employed and the results show a negative trend in banks performance within the study period. This observation is worrying due to the crucial role banks play in the economy. On the determinants, market share of loan is found to be positively related to performance, confirming the relative market power hypothesis. The results further reveal that banks in Ghana pass on their inefficiencies to their customers by raising their lending rates and lowering their deposit rates. The findings have some policy implications: banks should reduce the level of administrative overheads instead of passing their inefficiencies to their customers, as this has the effect of reducing the amount of credit customers would take for economic activities. Keywords : Structure-Conduct-Performance Hypothesis, Market Power Theory, Return on Assets, Return on Equity, Net Interest Margin
Highlights
The financial sector is crucial to the economies of various countries, and banks remain a core of the sector, especially in developing economies where the capital market is not strong enough (Matthew & Laryea, 2012).The banking sector in Africa and the rest of the developing world has experienced major transformation in its operating environment
The second part employs the panel technique to examine the determinants of banks performance
The conclusions derived from the study have some policy implications for actors in the banking industry
Summary
The financial sector is crucial to the economies of various countries, and banks remain a core of the sector, especially in developing economies where the capital market is not strong enough (Matthew & Laryea, 2012).The banking sector in Africa and the rest of the developing world has experienced major transformation in its operating environment. The objectives of the FINSAP, inter alia, were to address the institutional deficiencies of the financial system, in particular by restructuring distressed banks, reforming prudential legislation and the supervisory system, permitting new entry into financial markets by public and private sector financial institutions, and developing money and capital markets (Brownbridge & Gockel, 1996). In these reforms, the roles of banks remained central in financing economic activities in the various segments of the markets especially in sub-Saharan Africa (Athanasoglou, Delis & Staikouras, 2006). Adequate performance of financial institutions measured in terms of profitability is of crucial importance not just to their customers but for their continued growth and survival (Bikker, 2010)
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