Main Determinants of Banks’ Stability: Evidence from Commercial Banks in Ghana

Joseph Yensu¹, Hadrat M. Yusif², Emmanuel Tetteh³, George Asumadu⁴ and Daniel A. Atuilik^5,

¹Department of Finance, Kumasi Technical University, Kumasi-Ghana

²Department of Economics, Kwame Nkrumah University of Science and Technology, Kumasi-Ghana

³Department of Finance, Ghana Cocoboard, Accra, Ghana

⁴Department of Accountancy and Accounting Information systems, Kumasi Technical University, Kumasi-Ghana

⁵Department of Infomatics, Heritage Christian College, Accra, Ghana

Cite this paper:
Joseph Yensu, Hadrat M. Yusif, Emmanuel Tetteh, George Asumadu and Daniel A. Atuilik. Main Determinants of Banks’ Stability: Evidence from Commercial Banks in Ghana. Journal of Finance and Economics. 2021; 9(2):42-52. doi: 10.12691/jfe-9-2-1

Abstract

This study focuses on the main determinants of the stability of commercial banks in Ghana. The work was guided by three objectives, namely investigating the firm-specific, board characteristics and macroeconomic variables that determine bank stability in Ghana. This study used panel data, sourced from 8 banks over 2008-2017, constituting 80 observations. Firm-specific and board-characteristic data were sourced from the selected banks through their audited financial statements. Data on macroeconomic variables were sourced from World Development Indicators, 2018 and Bank of Ghana. The study, through Hausman specification test, selected appropriate models for estimations. STATA 13.0 was used for the data analysis. From the findings, bank size and net profit margin had significant positive effects on bank stability whilst interest cover had a negative significant effect on banks’ stability. Also, characteristics, gender of CEO, board size and frequency of board meeting there was a significant positive effect on bank stability. With regards to macroeconomic variables effect, inflation and growth of gross domestic product had significant positive impact on banks’ stability. Bank rate had a significant negative impact on bank stability. The study therefore recommends that, the commercial banks in Ghana should embark on reasonable expansion. They should also ensure effective and efficient utilization of all banks' assets. The banks should further constitute a reasonably board size, made up of different expertise. Government of Ghana should consciously embark on accelerated economic growth, supported by sound economic fundamentals.

Keywords:
Bank Stability determinants firm-specific Hausman Test Ghana

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