Comparative Analysis of Profitability of Local and Foreign Banks in GhanaReport as inadecuate

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Journal: Asian Economic and Financial Review

Abstract: The implementation of the Financial Sector Adjustment Programme has beckoned to a number of foreign banks to flock into the country to do business. This has brought about intense competition in the banking industry with its attendant implications for profitability in the industry. In the light of this, the study seeks to make a comparative analysis of the profitability of foreign and local banks in Ghana. The study uses a sample of six banks of which three are foreign banks. Financial statements of the selected banks from 2008 to 2014 are used for the analysis employing profitability ratios such as Return on Assets ROA, Capital Adequacy CA, Return on Equity ROE and Management Efficiency ME. We find wide fluctuations in the profitability ratios of the banks. Again, the foreign banks are found to have outperformed the local banks in ROA, CA and ROE. The local banks however, performed better than the foreign banks in ME, except in 2009. We conclude that, the foreign banks are more profitable than their local counterparts during the period under study. It is therefore recommended that, protective measures be put in place to make the local banks more competitive. For instance, the local banks could be required to make less minimum capital requirements than the foreign banks. This study is one of very few studies which have investigated a comparison of profitability of foreign and local banks within the banking industry in Ghana, particularly, after the increment of the minimum capital requirement for commercial banking by the bank of Ghana in 2012.


Asian Economic and Financial Review

Month: 05-2016 Issue: 5

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