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

Abstract

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.

Evidence of Financial Ratio Impact on Non-Financial Firm Profitability

“…In contrast to research conducted by Boadi et al, (2013), who analyzed data from insurance companies in Ghana found a strong positive relationship between leverage and profitability. Similar results were also found by Burja (2011) in his research on company profitability in the chemical industry in Romania.…”

“…Much research has been done on the impact of various factors on company profitability, such as research on the effect of liquidity management on the profitability of manufacturing companies in Sri Lanka (Kobika, 2018), company size on the profitability of construction companies in Malaysia (Mohd Zaid et al, 2014). , company age to the profitability of non-financial companies in Turkey (Akben-Selcuk, 2016), working capital management to the profitability of insurance companies in India (Charumathi, 2012), financial leverage to insurance companies in Ghana (Boadi et al, 2013), the ratio debt on company profitability in Malaysia (Alarussi & Alhaderi, 2018).…”

Impact of cocoa price shock on the bank profitability in Ghana

“…The results additionally revealed that for the macroeconomic factors, only exchange rate has negative effect on profitability. Boadi (2015) examined the effect of both internal and external factors on Ghanaian banks' profitability, using random effects and pooled ordinary least square models and data from 1997 to 2014. The study results found that non-interest income, GDP growth and capital to assets significantly influence bank profitability.…”

Profitability Determinants of Savings and Loans Companies in Ghana: Evidence on Bank Specific and Macroeconomic Determinants

“…Different studies have employed different measures for bank profitability. Some of the studies used ROA as a measure of profitability (Boadi 2015, Anarfi et al 2016, Mawutor & Awah 2014, Antwi & Apau 2015. Other studies also used ROE as proxy for profitability of banks (Hassan andBashir, 2003, Mustapha Akinkunmi 2017).…”