Abstract:
Ghanaian banking industry has experienced significant reforms in the quest to ensure
efficiency and full openness to competition. This is eventually expected to stimulate profits
of banks and increased economic and financial freedom is expected to play a significant role
in such relationship. To this end, the study explored the linkage between bank cost efficiency,
competition level of the market, and the profitability of banks in Ghana in the presences of
economic and financial freedom. Using a panel data from 22 banks in Ghana over the period
2009 to 2018, it was observed that the cost efficiency of banks in Ghana is between 60% to
70% implying that banks have capability of reducing their costs up to 40% to 30%. Shadow
return on equity was found to be positive except after 2016 when it became negative
reflecting evidence of increased capital ratio. Also, the loan market was seen to be most
competitive. Finally, it was observed that concentrated market has a detrimental effect on
bank profit but efficient market has positive impact. In addition, both financial freedom and
economic freedom show a positive impact on bank profits. In the presence of increased
economic and financial freedom, competition tends to positively impact profits. It was
recommended that domestic banks could mimic the cost efficiency practices of their foreign
counterpart. Also, policymakers and regulators should be cautious in implementing
recapitalisation programme by comparing the benefit gained from increased capital adequacy
ratio with the associated impacts on the banks. Again, government should enhance freedom
in the financial sector in terms of banking transactions and businesses banks can undertake.
