5.1 Conclusion The strength and health of a banking system is a prerequisite for sustainable economic growth and development. Banks in Ghana have been undergoing major challenges in the dynamic operating environment over the past decade. Basically, to withstand negative shocks and maintain financial stability, it is important to identify the determinants that mostly influence the overall performance of banks in Ghana. The fundamental objective of this research was to identify the core determinants of profitability in the Ghanaian banking industry, despite the fact that global financial crisis continues to adversely affect banks performances, the world over. The scope of this study covered a random sampling, in which sixteen (16) banks were selected out of a total of 27, covering a period through 2004 to 2013. Based on series of tests conducted, the author made use of the random effect model to study both bank-specific/controlled variables( EQTA, LOTA, NIGI & LPTA) and external/un-controlled variables(MPR & INF), as this method revealed the more accurate compared to fixed effect result. The fact that performances in banks and other financial institutions are measured in various ways, the author used both ROA and ROE as dependent variables to ascertain the impact these selected variables would create on them. Result for ROA shows that both EQTA & MPR has a statistical highly significance effect on performances of these banks. This shows that banks with higher capital structure can absorb losses and are capable of withstanding any probable future shocks in Ghana. Therefore, the introduction of a new capital adequacy requirement by the Bank of Ghana was a smart move that could not only help banks to be sustainable, but also helping to contribute to stable economic growth. Also, the monetary policy rate (MPR) which determines the industry lending rate was also major contributing factor towards profitability in the Ghanaian banking industry. The higher this rate, the more profits banks were able to make, as they can easily factor it into their lending rate to the private sector, thus transferring the costs to customers. LPTA and INF were also highly significant to ROA, but affected it negatively. The more provision a bank makes the lower the profit it will realize at the end of the accounting period. This shows that asset quality was poor which accounted for huge accumulation of unpaid debt during the period that ended up soaring profits in these banks. Inflation also affected profitability negatively. It shows that inflation was never fully anticipated by banks managers and executives. These results are in line with our theory and expectations. However, both LOTA and NIGI were insignificant to banking performances in Ghana. Despite the fact that they had a positive correlation with ROA, both were statistically insignificant. For loans to asset variable, it might represent that because loan loss provision adversely affected ROA, most of those loans and advances were never repaid by customers. It is rational that the higher the loan portfolio, the higher the income obtained from it; however, it should also be noted that only quality loans will generate more income. In short, as a result of the competitive credit market condition and the successive cuts in interest rate, the interest spread which is a major determinant of profitability, becomes narrower. Similarly, result for ROE shows that EQTA, LPTA and MPR were highly statistically significant towards the performance of banks in the Ghanaian industry. This is consistent with the result obtained for ROA. However, the only difference is that EQTA affected ROE adversely. The reason for this underscored the difference highlighted in the theoretical review, whereas ROE measures how efficient management is towards managing it total resources, ROE measures how efficient management has been with shareholders equity. The negative correlation of this variable with ROE is because as capital adequacy is increased, the earning power of each cedi (Ghanaian currency) invested by shareholders in the business is reduced. LOTA has a negative correlation with ROE which is quite expected because the calculation of equity excludes liabilities from it. However, this variable is statistically insignificant towards ROE. NIGI and INF are quite insignificant towards ROE. 5.2 Recommendations Based on the findings of this research paper, the following recommendations are made to both bank managers/ management and policy authorities (Bank of Ghana): 5.2.1 To the bank managers/ management Bank managers/management must ensure that effective monitoring of loans and advances disbursement process must not be circumvented to aid statistical reporting. As the result revealed that higher loans does not necessarily transform to profit. In as much as loans represent the fundamental source of income in banks, therefore the need to establish and adhere to strict prudential guidelines in the administration of credit cannot be over emphasized. In todayâ€™s banking, focus should be shifted towards credit risk management and so, effective and active credit risk department/ personnel are required to achieve this goal. Also, the audit department should also aid in this process by ensuring that adequate checks and balances are observed. This includes ensuring adequate know-your-customer (KYC) is obtained and documented and reviewed regularly, monitoring the disbursement of loans (both on-site and off-site). If these measures are implemented, then asset quality will definitely lead to profitability, thus reducing the adverse impact of making more provisions for bad debts. A fundamental approach to any profit oriented venture is the use of SWOT (strength, weakness, opportunity & threats) analysis. Outside the primary source of income which is from loans and advances are incomes gotten from fees and commissions. They represent a minute but huge alternative source of generating profits. From the result, one of the weaknesses of the banks is the inability to effectively take advantage of their expansion and innovations into profits. Innovations and expansions are cost oriented ventures which can be neutralized by greater income generation, not necessarily from loans and advances. Bank managers should look at this weakness and take advantage of the opportunity that comes with it. Ensuring that all possible commissions are collected by the bank, whether manually by designated bank officials or through the system. This might represent a significant income leakages in both the system and manually. Therefore, it is recommended that regular income leakages and other checks are conducted so as to adequately capture all incomes due to the bank. Inflation in itself is not as bad as it seems, depending on whether the level of increase in anticipated or not. If anticipated and are correctly factored into profits, then the cost of increase will be avoided and controlled. However, from the result obtained above, we noted that for ROA, inflation adversely affected performance of banks in Ghana, significantly. This shows that the level of increase was never anticipated. And the cost that comes with it practically reduced the real value of banking profits. The authorâ€™s recommendation is that bank managers/ management must ensure to reasonably forecast future inflation so that it can be anticipated and the cost of it will be minimized. Also, capital adequacy as stipulated by the Bank of Ghana must be adhered to by all banks. The reason being that, based on the authorâ€™s findings, this variable had a major contribution towards profits in the industry. This shows that it can help to foster not only financial stability and economic growth but also can absorbed unexpected shocks which might happen in the future. 5.2.2 To the monetary authority (Bank of Ghana) Bank capitalization should be encouraged so that bank performance can be enhanced. Banks should endeavor to retain earnings to boost up capital rather than paying exorbitant bonuses. A well capitalized banking system will ensure financial stability and make the industry more resilient against external shocks and risk. This is because well capitalized banks have lower financial risk and thus are more likely to survive financial crisis. The study of Flamini et al. (2009) on the determinants of bank profitability, gives some support to a policy of imposing higher capital requirements in the Sub-Saharan region in order to strengthen financial stability. In line with this, the recapitalization requirement by the Bank of Ghana is appropriate.
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