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Comparative Analysis of Profitability of Local and Foreign Banks in Ghana

Author

Listed:
  • Samuel Erasmus Alnaa

    (Department of Accountancy, Bolgatanga Polytechnic, Ghana)

  • Joseph Adongo

    (Department of Accountancy, Bolgatanga Polytechnic, Ghana)

  • Matey Juabin

    (Department of Accountancy, Bolgatanga Polytechnic, Ghana)

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.

Suggested Citation

  • Samuel Erasmus Alnaa & Joseph Adongo & Matey Juabin, 2016. "Comparative Analysis of Profitability of Local and Foreign Banks in Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(5), pages 238-246, May.
  • Handle: RePEc:asi:aeafrj:2016:p:238-246
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    References listed on IDEAS

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    3. Muhamad Muda & Amir Shaharuddin & Abdelhakim Embaya, 2013. "Comparative Analysis of Profitability Determinants of Domestic and Foreign Islamic Banks in Malaysia," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 559-569.
    4. Muhammad AZAM & Sana SIDDIQUI, 2012. "Domestic and Foreign Banks’ Profitability:Differences and Their Determinants," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 33-40.
    5. DeYoung, Robert & Nolle, Daniel E, 1996. "Foreign-Owned Banks in the United States: Earning Market Share or Buying It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 622-636, November.
    6. Iqbal, Munawar, 2001. "Islamic and Conventional Banking in the Nineties: A Comparative Study," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 8, pages 1-27.
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    Keywords

    Comparative; Profitability; Foreign; Local; Banks; Ghana.;

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