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Determinats of profitability of commercial banks: evidence from Ghana
Boadi, Prince Owusu
The study examined the factors that determines the profitability of seven (7) commercial banks listed on the Ghana Stock Exchange (GSE) covering the period 2008-2017. The sample which was seven banks consists of four (4) local and three (3) foreign banks. There were two dependent variables notably profitability variables namely Return on Assets (ROA) and Return on Equity (ROE). There were also two categories of independent variables, grouped into Bank specific variables comprising of the Bank Size, Bank Loan, Bank Deposit, Bank Capital and Bank Overhead, whereas the macroeconomic variables were Gross Domestic Product (GDP), Exchange Rate (EXR) and Inflation (IFL). A panel data regression was conducted on the data collected and the Hausman specification test was used to choose the appropriate model between the fixed effect model and the Random effect model. After the analysis, it was found that Bank Size and Bank Capital were the factors that contributes to profitability among banks in Ghana because the results showed a positive relationship between them and ROA with solely Capital been significant. The variables (Bank Deposit, LOAN, OVERHEAD) had a negative relationship and with the loan variable been significant on ROA. On the macroeconomic level, only Exchange Rate turned out as a factor that increases the banks profit leaving Gross Domestic Product and Inflation impacting negatively and been significant. The results obtained under ROE as a dependent variable is not different from the ROA. However, under the ROE, the variables bank SIZE and LOAN were very significant indicators. Where Gross Domestic Product and Inflation turns out to be insignificant. The study does recommend that, the banks should put in much effort in increasing their assets (capital base) since an increase in total assets increases profitability and also do well to put in some mechanisms to monitor the loans giving out to customers in order for them to pay within the said time. It is also recommended that, the banks need to employ some modern technologies like some online and data applications that will make it easier in assisting their customers in time.
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