Profitability Of Banks In Ghana Research Articles

Implications of financial leverage for bank profitability in Ghana

The complexity of the relationship between debt and equity financing models and their impacts on bank profitability in the Ghanaian banking sector cannot be overemphasized. This study examines the impacts of the two financing models on bank profitability. Emphasis is placed on the importance of credit risk, liquidity risk, and capital adequacy when making financing decisions. To measure bank profitability, the research employs two key metrics: Risk-adjusted return on assets (RAROA) and risk-adjusted return on equity (RAROE). These metrics indicate how well banks are performing financially. An inverse relationship between bank profitability (measured by RAROA) and credit risk was among the research findings. This implies that higher credit risk negatively affects profitability. There is a direct link between capital adequacy and RAROE, inferring that as banks increase their lending activities, they need to maintain adequate capital to safeguard their profitability. We recommend a balanced financing approach, which mitigates risks associated with excessive debt while still benefiting from the advantages of asset diversification and strategic growth.

Drivers of Banks’ Financial Performance

A significant number of banks folded up during the Ghanaian banking financial crisis of 2017 to 2018 causing significant social costs as well as impeding economic growth. We take a step backward to present the significant drivers of the profitability of banks in Ghana. Obtaining panel data from the banks’ websites, the Ghana Statistical Service (GSS), and the Ghana Stock Exchange (GSE), the regression analysis was used to assess the drivers of profitability of banks in Ghana. The findings show that the bank-specific variables had no combined effect on profitability. Hence, the study concludes that the bank-specific variables do not have a significant influence on the performance of the Ghanaian listed banks. On the other hand, some of the external factors were observed to have a significant influence on profitability. The findings further showed that the drivers of profitability of the Ghanaian banks were, inflation, capital adequacy, and monetary policy. Since these are all external factors, the banks must learn how to predict and anticipate the external factors and make adjustments in their operations to enable them to improve profitability. While this study recommends to the managers of Ghanaian banks to be cautious in their operational decisions, the economy must also be managed soundly to ensure the growth of banks and hopefully avoid future crises.

Determinants of Banks Profitability: Empirical Evidence from Ghana’s Commercial Banking Industry

Over the years, Ghana’s commercial banking industry has been bedeviled with numerous challenges. The unbridled effect of this is the 2018 banking sector megrim which led to the collapse of seven major banks. This pointed out that it is very crucial to identify and mitigate the factors that negatively affect the performance of the banking sector. This paper is used to investigate the effect of banks specific variables (BSVs) and macroeconomic variables (MEVs) on the profitability of commercial banks (NIM, ROE, and ROA) in Ghana using FRED annual data of 25 years. In order to avoid endogeneity problems and aggregation bias, we used the SURE model to run the estimates simultaneously. The result reveals that profit earned by Ghana’s commercial banks is largely influenced by both internal factors such as KA, AQR, LMGT, MEFFI, and Z-Score and fluctuations in the macroeconomic environment (GDP and FOREX). The impact of KA, LMGT, MEFFI, and Z-score is significantly positive whereas AQR (NPLs) is found to have a negative effect on banks profitability. GDP has a significant negative impact on Ghana’s commercial bank’s profitability whiles forex induced commercial banks profitability positively, but inflation CPI does not determine the profitability of commercial banks in Ghana.

The Relationship Between Credit Risk Management and the Profitability of Banks in Ghana

Banks are faced with several types of risks. Prominent among these risks is credit risk. Profitability is key to the growth and survival of banks. This study therefore seeks to investigate the relationship that exists between credit risk and the profitability of banks in Ghana. To achieve this objective, eight banks were sampled out of a population of twenty nine (29) banks over a ten (10) year period from 2005 to 2014. A panel regression was run using Return on assets (dependent variable) as a proxy for profitability while non-performing loan ratio and net charge off to total loans and advances (independent variables) were used as proxies for credit risk. Other variables such as size, growth and debt ratio which influence profitability were controlled for in the model. Secondary data comprising annual reports of the selected banks was used for the study. The study established a positive and significant relationship between credit risk and the profitability of banks in Ghana. This implies that banks in Ghana enjoy profit in the midst of all the credit risk. The study also confirmed the findings of previous studies that, size and debt ratio are factors that influence profitability as there was a positive and significant relationship with profitability.

Portfolio Management and Profitability of Commercial Banks

Banks optimally invest to earn profit as they consider the associated risks with such portfolio management. Portfolio management is a medium by which the banks hold investment due from other banks, purchase Government securities and invest in subsidiaries. This paper investigates the effect of banks’ portfolio management on profitability. Five commercial banks that are listed on the Ghana Stock Exchange were randomly selected for the study. Data on the total market value of Government securities, investment in subsidiaries and due from other banks were collected from the Bank of Ghana and the Ghana Stock Exchange between 2008 and 2017. As panel study, we regress portfolio management on profitability. The findings show that holding of government securities and investing in subsidiaries have a significant positive effect on the profitability of banks in Ghana. The findings also show that non-performing loans have a significant negative effect on the profitability of the banks. Therefore, it is recommended that banks should develop a balance between holding government securities and investing in subsidiaries to improve upon its profitability. The banks should also double their efforts to reduce their non-performing loans by enhancing the skills of its officers, strengthening its due diligence procedures and intensify monitoring activities.

Bank Recapitalisation and the Profitability of Banks in Ghana

Bank Recapitalisation and the Profitability of Banks in Ghana

Re-Examining the Impact of Credit Risk on Profitability of Banks:Panel Evidence from Ghana

Credit risk management has become an instrument for the survival and growth of financial institutions. The major cause of banking problems has been identified as ineffective credit risk management. The Ghanaian banking sector is currently undergoing significant reforms which have led to some banks being collapse whiles others consolidated. This study seeks to re-examine the impact of credit risk on the profitability of Banks in Ghana. Panel data covering the period of 2010-2015 was gathered from 20 banks. Three determinants of credit risk were selected. These are asset quality, non-performing loan, and liquidity. Return on Asset (ROA) was employed as a measure of profitability. We found that that while the relationship between asset quality, non-performing loan and profitability were statistically significant, the relationship between liquidity ratio and banks’ profitability was found to be insignificant. This shows that banks with huge non- performing loans are less profitable and prone to a high rate solvency rate. Based on the result of the study, it is recommended that banks should adopt and implement effective credit risk management strategies as it will enhance their profitability. Keywords : Asset Quality Credit risk, Ghana, Non- performing loans. Liquidity Risk. DOI : 10.7176/EJBM/11-5-03

Does corruption grease or sand the wheels of bank profitability in Ghana?

This paper investigates the effect of corruption on bank profitability in Ghana using bank-level dataset spanning 2008 to 2017. By employing the system Generalized Method of Moments (GMM) technique...

The Impact of Capital Structure on Profitability of Commercial Banks in Ghana

The study examined the effect of capital structure (measures as short term debt ratio, long term debt ratio, and total debt ratio) on profitability (measured as Return on Assets and Return on equity) of commercial banks in Ghana. The study sampled 23 banking over a six year period from 2010 to 2015 and extracted data from the annual of these banks. Data was analysed using descriptive statistics, correlation analysis as well as panel regression analysis. The results showed that banks in Ghana are highly leveraged with debt financing constituting 84% of total capital out of which 77% is short term debt despite the increase in minimum equity capital of these banks. The regression analysis revealed that short term debt ratio and long term debt ratio are negatively related with profitability of banks in Ghana. However, total debt ratio was positively associated with profitability of Banks in Ghana. On the control variables, firm size, foreign ownership and age of the bank were positively associated with banks profitability whiles growth in customers? deposits was negatively associated with banks? profitability. The results show that commercial banks in Ghana reliance on short term financing (deposits) reduces banks profitability and as such banks should shift their financing focus from deposits to other sources. The results call for firms to choose the right mix of short term and long term debt that will maximize profitability of bank.

Determinants of Bank Profitability in Ghana: New Evidence

<p>This study examines the determinants of profitability in the Ghanaian Banking Industry for an eight (8) year period of 2007 to 2014. Using a sample from 9 local banks and 12 foreign banks in Ghana, the study combines bank-specific determinants and macroeconomic variables to access bank profitability with Return on Assets (ROA) as the dependent variable. The Hausman specification test was performed on a panel regression to determine the appropriate model for this study. The estimation results shows that, bank SIZE and DEPOSITS are not significant and does not impact profitability. However, LOANS, CAPITAL and OVERHEADS were found to be significant and impacts on profitability. The study concludes that banks in Ghana should be technological in their operations to reduce staff cost since the OVERHEAD was highly significant and impacts negatively on ROA.</p>

Does Information Sharing Promote or Detract from Bank Returns: Evidence from Ghana

AbstractThis study examines the effect of information sharing through credit reference bureaus (CRBs) on the profitability of banks in Ghana. We adopt a Prais‐Winsten panel regression for 25 banks across four years to examine the empirical relations. We establish that information sharing through CRBs is positively related to bank profitability. This implies that as banks use the services of CRBs (indicating information sharing) they are able to boost their profitability. This is because information sharing can lead to an increase in interest income by reducing incomplete and false information which in turn leads to a reduction in collateral constraints. Further, information sharing reduces information asymmetry by lowering the evaluation (adverse selection) and monitoring costs (moral hazard) associated with the lending proposition. The major implications of our findings are that sharing information across banks is important for the profitability of the banking system as a whole. In this regard, it would be useful to find more efficient and cost‐effective ways to provide information sharing services to banks and other non‐bank financial institutions. We recommend that the laws that mandate the gathering of credit information be expanded to include credit data from tax agencies, utility agencies and court rulings on financial matters.

Evaluating Bank Profitability in Ghana: A five step Du-Pont Model Approach

<p><em>We investigate bank profitability in Ghana using periods before, during and after the globe financial crises with the five step du-pont model for the first time. We adapt the variable of the five step du-pont model to explain bank profitability with a panel data of twenty-five banks in Ghana from 2006 to 2012. To ensure meaningful generalization robust errors fixed and random effects models are used.Our empirical results suggests that bank operating activities (operating profit margin), bank efficiency (asset turnover), bank leverage (asset to equity) and financing cost (interest burden) were positive and significant determinants of bank profitability (ROE) during the period of study implying that bank in Ghana can boost return to equity holders through the above mentioned variables.. We further report that the five step du-pont model better explains the total variation (94%) in bank profitability in Ghana as compared to earlier findings suggesting that bank specific variables are keen in explaining ROE in banks in Ghana. We cited no empirical study that has employed five step du-pont model making our study unique and different from earlier studies as we assert that bank specific variables are core to explaining bank profitability.</em></p>

Profitability Determinants of the Ghanaian Banking Sector in Ongoing Wave of Consolidation

<p>The purpose of this research is to examine the influence of both internal and external factors that determine the profitability of Ghanaian banks. The period under consideration extends from 1997-2014. To determine factors that determine the commercial bank profitability in Ghana, the research employed random effects and pooled ordinary least square models. Internal variables, both financial and non-financial were obtained from the database of Ghana Association of Bankers over the period 1997-2014. The macroeconomic variables were retrieved from Ghana Statistical Service (GSS) and Bank of Ghana (BOG) databases. The results of our study reveal that internal and external variables significantly influence bank profitability, non-interest income is not the sole determinant of profitability as other internal variables, such as capital to assets, GDP growth are statistically significant. However, determinants such as liquidity, deposit ratio, overhead, non-performing loans, number of employees, inflation and real interest rate do not impact significantly on banks’ profitability in Ghana. The research could not include more qualitative factors. Future research could include more qualitative factors, for example, management leadership style with the quantitative factors and test the long run effects using a cointegration approach. The main value of this paper is the analysis of new empirical evidence using a current data.</p>

Market power, efficiency and bank profitability: evidence from Ghana

This study examines the determinants of bank profitability in Ghana within the market power, relative market power and efficient structure frameworks. Using annual data on 26 Ghanaian banks from 2003 to 2011, we employ the Herfindahl Index and concentration ratio as our proxies for market power hypothesis while efficiency scores from the data envelopment analysis is employed as a proxy for the efficient structure hypothesis. The system generalized method of moment is employed to estimate a panel data model with return on assets, return on equity and net interest margin as our proxies for bank profitability. The results of the empirical estimation reject both the market power and relative market power hypotheses in the Ghanaian banking industry. While technical efficiency is found to have a positive relationship with profitability to support the efficient structure hypothesis, a negative relationship between scale efficiency and profitability is reflected by the inability of banks to operate at the optimal scale of operations. We also document evidence on the low persistence of profit which suggests a competitive banking industry. Implications for industry regulation are discussed.

Determinants of Bank Profitability in Ghana

Our study attempts to investigate the relationship between profitability and a set of bank-specific characteristics and macroeconomic factors on foreign and local banks in Ghana between 1999 and 2010. The findings suggest that cost management has an inverse relationship with profitability, bank size and credit risk show a positive association with profitability. The results apply to foreign and local banks as well. Our results suggest that bank management should pay attention to cost maintenance, and prudent risk management to deliver profitability, and perhaps build bigger local banks.