The effect of bank-specific characteristics and macroeconomic factors on bank profitability in Ghana
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Date
2023
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KNUST
Abstract
This research examines how bank-specific features and macroeconomic variables affect Ghanaian banking profitability. A panel research approach is used to analyse nine Ghana Stock Exchange banks. Secondary data from 2000–2021 yearly reports is evaluated using random effect estimate and GMM. The data show numerous key bank profitability determinants. Higher asset quality increases profitability, whereas loan expansion increases return on equity but decreases return on assets. Capital sufficiency usually boosts profitability, although liquidity and profitability are complicated and context dependent. Bank size and efficient expenditure control are also seen as positive contributors to profitability, with bigger banks reaping the benefits of economies of scale and better cost management due to their size. A better financing structure and larger deposit ratio boost profitability. Furthermore, macroeconomic factors play a role, with higher inflation reducing loan demand, a higher growth rate of real GDP boosting interest income, and changes in interest rates impacting net interest margin. Based on these findings, it is recommended that banks in Ghana prioritise maintaining high asset quality to enhance profitability. They should carefully manage loan growth to balance risk and returns, while also ensuring adequate capital levels and optimising liquidity management. Furthermore, banks should focus on efficient expense control measures and consider the benefits of scaling up their operations.
Description
A thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology, Kumasi in partial fulfilment of the requirements for the award degree of Master of Science in Accounting and Finance