Determinants of profitability of commercial banks in Ghana

Abstract

This study analyses the determinants of commercial banks profitability in Ghana. These determinants have been grouped into internal factors and external factors. Panel Data collected on seven commercial banks in Ghana was examined over a period of 2007-2017, the generalized least squares technique was used to estimate fixed effect regression models. Statistical Package for Social Sciences (SPSS) was used in analyzing the data. This study was motivated to research into the factors that influence the profitability of only Ghanaian banks listed on the Ghana Stock Exchange. ROA and ROE were the major measures used to assess the profitability of banks. The variables that were significant in the determination of the profitability of banks were liquidity, capital adequacy, inflation and quality of asset. These factors included both. The study concluded by pointing out that the implications of the presence of multicollinearity makes it difficult to predict which variable is having greater influence on the ROA and ROE, also the variables used can either have positive or negative implication on the major measure of profitability used for the study. The study recommended that the research departments in the banks should carry out further studies on this areas due to the presence of multicollinearity the study recommends that authorities in charge of managing commercial banks should put in place proper loan recovery mechanisms and advertising strategies to increase their market share to enable them improve on the variables such as quality of asset, liquidity and adequacy of capital that have the potential of reducing the negative implication that the other variables will bring.