Profitability Determinants of Ghanaian Banks - A Case Study of Cal Bank Limited

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The objective of this project was to identify the factors which affect the profitability of Ghanaian banks in the Ghanaian banking industry and to identify the relationship between these factors and how they impact on each other using the Structure-Conduct-Performance model. It also set out to identify the factors which can be controlled by the banks and how their profitability can be improved. In achieving these objectives, a case study of Cal Bank Limited was chosen. The choice of Cal Bank Limited was made to represent indigenous Ghanaian banks as it was the only Ghanaian bank listed on the Ghana stock exchange. Secondly its performance upon enlistment had generated interest in the investor community. In setting out to identify the significant factors which determine the profitability of the bank, the researcher studied the bank’s internal environment, the competition within the industry and inflation as possible factors. Variables were calculated from the bank’s financial statements to serve as proxies for these determinants. These individual variables were compared with the profitability of the bank. The study revealed that industry concentration was a major determinant of the bank’s profitability. Over the study period, competition for deposits which was measured by the Herfindhal-Hirschmann index was increasingly inversely related to the profitability of the bank i.e. as concentration increased, the profitability of the bank decreased. It is therefore important that management of the bank place emphasis on improving their market share in the industry deposits in order to transform more of these deposits into interest-bearing assets which in turn will increase its profitability.
A thesis submitted to the Department of Banking and Finance, KNUST School of Business in partial fulfillment for the Degree of Master of Business Administration (MBA)