BANK CAPITAL and PROFITABILITY: a STUDY of SELECTED BANKS in GHANA Hope Korbla Gadagbui P
European Journal of Business and Innovation Vol.5, No.3, pp.26-42, June 2017 ___Published by European Centre for Research Training and Development UK (www.eajournals.org) BANK CAPITAL AND PROFITABILITY: A STUDY OF SELECTED BANKS IN GHANA Hope Korbla Gadagbui P. O Box CT 566, Cantonments, Accra, Ghana ABSTRACT: The study investigated the relationship between bank equity capital and profitability by sampling fourteen (14) banks, using the purposive sampling technique, out of the twentyeight (28) universal banks operating in Ghana at the time, with data covering an eleven- year period (2005-2015). The study adopted the panel data methodology to examine the effect of bank capital on profitability. The random-effects Generalised Least Square (GLS) regression was adopted as an estimation technique for the research. The study revealed that equity capital is significantly and positively related to Net Interest Margin (NIM), and Return- on-Equity (ROE). Bank size is significantly and negatively related to ROE, and insignificantly inversely related to NIM. Regulated bank capital is a disincentive to inclusive financial intermediation in Ghana. KEYWORDS: Bank, Capital, Ghana, Size, Equity, Profitability INTRODUCTION In Ghana, there is currently a raging debate concerning the low capital base of banks and the need to increase the minimum capital requirement by encouraging mergers and acquisitions in the industry. Whereas some argue that the inevitably pending consolidation of the capital level of the banks should be left to the market forces to determine, others are of the view that the re- capitalisation should be triggered by the regulator. Some industry players and academics believe that higher minimum capital requirements empower the banks to underwrite the big ticket transactions thereby retaining much needed foreign currency and higher profitability for the banks.
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