Determinants of performance of Comercial Banks in Ghana

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Date
2014-10-16
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Abstract
Given the rapid development of financial markets, banks in Ghana are facing intense competition. Managers in the industry ought to know and understand variables that significantly influence the profitability of the bank. This is crucial considering the fact that banks’ profit may play a crucial role in the banks’ sustainability and the development of the economy in general. With this backdrop, this study sought to examine the determinants of commercial banks profitability and the extent to which they impact on performance. The empirical estimation is based on a panel regression analysis of the relationship between profit variables and expenses to income ratio, capital adequacy, liquidity measure, asset quality, income diversification ability, gross domestic product, money supply, size of the bank and inflation. The results suggest that expenses to income ratio, capital adequacy, asset quality, income diversification ability, money supply, and size of the bank influences the banks profit in the statistically significant manner. The outcome shows that income diversification and size of the bank have improved banks profit level whiles efficiency of expenditure, capital adequacy, asset quality and money supply had reduce the banks profit level. However, of the extent of influence, income diversification in a form of fees and commissions’ income has had a greatest impact i.e. contributing significantly to the profit of banks. One that has been reducing the banks profit level significantly is expenses to income ratio (expenses). The banks therefore should concentrate most on these variables as they want to maximize profit.
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A thesis sumitted to the Department of Mathematics Institute of Distance Learning Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Master of Science in Industrial Mathematics,
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