The Impact of Liquidity on Performance of Commercial Banks in Ghana
Journal Title: Academic Journal of Economic Studies - Year 2018, Vol 4, Issue 4
Abstract
The concept of liquidity and profitability are two critical concepts in finance literature especially in banking sector. Finance assumes an inverse relation between liquidity and profitability even though several empirical studies indicate otherwise. The study examined the level of bank liquidity, the trend of banks liquidity and the impact of bank liquidity on profitability of commercial banks in Ghana. The study was based on a sample of 21 banks over a 10 year period from 2007 to 2016 with data arranged in the form of a panel. Data was analysed using descriptive statistics, correlation analysis and regression analysis. The results show that the average liquid assets to total assets for commercial banks is 20% whiles liquid assets cover over total interest bearing liabilities was 1.19. The results show that liquidity is positively associated with return on assets using both measures of bank liquidity. Regarding return on equity, there is a weak positive relationship between the ratios of liquid assets to total assets (LIDQ1). An insignificant negative relationship was observed between return on equity (ROE) and liquid assets to total interest bearing liabilities (LIQD2). On the control variables, the study reported a positive association between net interest margin, bank size, capital adequacy ratio, foreign ownership and bank profitability. The study implies that a pre-determined optimal level of liquid assets is needed by banks to enhance profitability. Thus, banks should determine the level of liquidity beyond which profitability will be reduced.
Authors and Affiliations
Richard Charmler, Alhassan Musah, Evans Akomeah, Erasmus Dodzi Gakpetor
Keywords
Related Articles
- EP ID EP425068
- DOI -
- Views 59
- Downloads 0
The Impact of Green Innovation on Organizational Performance: Evidence from Romanian SMEs
The complexity of economic life in terms of competition imposed by the market economy increases the role of information in decision making. Its quality depends on the quality of current future innovative decisions taken...
Analysis of the Correlation between the Fodder Receipts and the Economical Performances of the Pig Breeding Units
Respecting the European Union normative regarding the average weight of carcasses processed in the slaughter-houses, as well as the quality of the delivered meat, impose the search for the optimum variants for pig breedi...
The Effect of Financial Management Knowledge, Competence and Supervision Act of the Government’s Internal Control Officer on the Quality of Government’s Performance Accountability Report Evaluation
This study aims to determine effect of financial management knowledge, competence and supervision of the internal control official act of government (either simultaneously or partially) on the quality evaluation of perfo...
Infrastructural Development and Growth of Micro, Small and Medium Scale Enterprises (MSME)
A critical perspective on micro, small and medium scale enterprises is the believe that it contributes to improve social and economic advancement of a nation. However, this critical component in an economy remains underu...
Measuring the Organizational Performance: A Theoretical Overview
The challenges of the new economic environment have led to the development of modern global customer-oriented entities and have reduced costs, increased innovation, gaining competitive advantage beyond space and temporal...