Factors that affect the profitability of the listed commercial banks in Ghana.
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Date
August , 2015
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Abstract
In order to resist shocks and maintain financial stability, it is vital to identify the determinants that mostly influence the profitability of commercial banks. This study examines the impact of bank-specific as well as macroeconomic factors on the profitability of the listed commercial banks on the Ghana Stock Exchange from the year 2004 to 2013. It uses a panel regression with the help of STATA to analyse the impact of loans, capital ratio, liquidity, expenses, deposits, inflation rate, taxation and gross domestic product (GDP) on profitability using return on equity (ROE) and return on asset (ROA) as the measures. The empirical results found that capital ratio, expenses and liquidity had strong influence on both measures of profitability. Loans, and taxation influenced ROA with deposits affecting ROE. However, the results showed that liquidity and taxation had a positive relationship with profitability which could be due to the bank‟s ability to transfer taxes to customers or the holding of adequate liquidity helps minimize liquidity risk and financial crises leading to an increase in profit. GDP also surprisingly had a negative impact on profitability. With regards to the macroeconomic variables, none of them showed a significant relationship with the banks‟ profitability. These results imply that in order to increase profitability, management should be concerned with improving its bank-specific factors.
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A dissertation presented to the department of accounting and finance in partial fulfillment of the requirement for the award of Masters in Business Administration,