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Credit Risk, Deposit Mobilization and Profitability of Ghanaian Banks

Author

Listed:
  • John Akuma

    (Data Link Institute, PO. Box Co 2481, Tema, Ghana)

  • Isaac Doku

    (Data Link Institute, PO. Box C0 2481, Tema, Ghana,)

  • Nathaniel Awer

    (Data Link Institute, PO. Box C0 2481, Tema, Ghana)

Abstract

This paper seeks to investigate the relationship between deposit mobilization, credit risk and profitability of Ghanaian banks from 2002 to 2011. Secondary data were obtained from financial statements of 17 Ghanaian banks who have operated consistently within the study period. Panel regression analysis is used in the estimation of a function relating to the return on assets (ROA) to measures of credit risk and deposit mobilization as well a few control variables. The results reveal a significantly positive relationship between credit risk, deposit mobilization, growth in interest income, capital adequacy ratio and profitability of Ghanaian banks. However, a significantly negative relationship between year-on-year inflation and ROA was found. With regard to the relationship between bank size and profitability, the results found no significant association between the two. The research suggests that profitable banks in Ghana depend more on bank deposits as one of their main financing options. In the Ghanaian case, a high proportion (64.33%) of total liabilities is represented by bank deposits; attesting to the fact that Ghanaian banks largely depend on deposits for financing their operations. The study recommends that banks should implement effective strategies to mobilize more deposits from both the formal an informal sectors of the economy. They should also invest heavily in credit risk management. Both strategies will enhance their profitability.

Suggested Citation

  • John Akuma & Isaac Doku & Nathaniel Awer, 2017. "Credit Risk, Deposit Mobilization and Profitability of Ghanaian Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 394-399.
    • Handle: RePEc:eco:journ1:2017-05-47
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    References listed on IDEAS

    as
    1. Joshua Abor, 2005. "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 6(5), pages 438-445, November.
    2. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
    3. Mr. Johan Mathisen & Thierry D. Buchs, 2005. "Competition and Efficiency in Banking: Behavioral Evidence from Ghana," IMF Working Papers 2005/017, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Profitability; Deposit Mobilization; Credit Risk;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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