This paper examines the relationship between Capital adequacy, Cost Income ratio and performance of banks in Ghana. The study uses a sample of banks listed on the Ghana Stock Exchange and data for the periods ending 2013 and 2018 was gathered from their annual reports and regression analysis was carried out using Statistical Software Package, STATA version 15.
The study revealed that capital adequacy is negatively related to performance, as measured by return on assets (ROA) and return on equity (ROE). However, it is statistically insignificant against return on assets but significant in the case of return on equity. The study also revealed that cost-income ratio has a negative relationship with ROA and ROE and it is statistically significant.
For total debt to equity, it is negatively related to ROA and ROE. However, the relationship is statistically significant in the case of ROA but insignificant in the case of ROE. Also, bank size has a negative relationship with performance, both ROA and ROE and it is statistically significant. Lastly, assets growth has a positive relation with both ROA and ROE but it is statistically insignificant in the case of ROA and statistically significant in the case of ROE.
1. Abreu, M., & Mendes, V. (2001). Commercial Bank Interest Margins and Profitability: Evidence from E.U Countries. Working paper Series, Porto
2. Almazari, A. A. (2013). Capital Adequacy, Cost Income Ratio and the Performance of Saudi Banks. International Journal of Academic Research in Accounting, Finance, and Management Sciences, 3(4), 284–293
3. Antwi, F., & Apau, E.V. (2015). Financial Performance of Rural and Community Banks (RCBs) in Ghana. The International Journal of Business & Management, 3(2), 76-85.
4. Athanasoglou, P. P., & Delis, M. T. (2006). Determinants of bank profitability in the South Eastern European Region. Working Paper, MPRA. URL: http://mpra.ub.uni-muenchen.de/10274/.
5. Barnor, C., & Odonkor, T. A. (2013). Capital Adequacy and the Performance of Ghanaian Banks. Journal of Business Research, 6(1-2), 105-117.
6. Naceur, B. S., & Kandil, M. (2009). The impact of capital requirements on banks’ cost of intermediation and performance: The case of Egypt. Journal of Economics and Business, 61(1), 70–89.
7. Berger, A. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and Banking, 27,432-456.
8. Bhunia, A., Mukhuti, S. S., & Roy, R. G. (2011). Financial Performance Analysis-A Case Study. Current Research Journal of Social Sciences, 3(3): 269-275.
9. Blum, J. (1999). Do Capital Adequacy Requirements Reduce Risks in Banking? Journal of Banking & Finance, 23(5), 755-771.
10. Breusch, T. S., & Pagan, A. R. (1979). A simple test for heteroskedasticity and random coefficient variation. Econometrica, 47 (5), 1287-1294.
11. Christian, C., Moffitt, J. S. & Suberly, L. A. (2008). Fundamental Analysis for Evaluating Bank Performance: What Variables Provide the Greatest Insight into Future Earnings? Journal of Bank Accounting and Finance, 22, 17-24.
12. Durbin, J. (1954). Errors in variables. Review of the International Statistical Institute, 22 (1/3), 23-32.
13. Durbin, J., & Watson, G. S. (1950). Testing for serial correlation in least squares regression, I. Biometrika, 37(3- 4), 409-428.
14. Durbin, J., & Watson, G. S. (1951). Testing for serial correlation in least squares regression, II. Biometrika, 38(1- 2), 159-179.
15. Flamini, V.C., McDonald & Schumacher, L. (2009). The determinants of commercial bank profitability in sub-saharan Africa. IMF Working Paper, (International Monetary Fund, African Department,
WP/09/15)http://www.imf.org/external/pubs/ft/wp/2009/wp0915.pdf
16. Gatsi, J. G. & Akoto, R. K. (2010). Capital structure and profitability in Ghanaian banks. Retrieved from: http://ssrn.com/abstract=1618952.
17. Ghosh, S.N., Narain, D.M. & Sahoo, S. (2003). Capital requirements and bank behaviour: An empirical analysis of Indian public sector banks. J.Int.Dev.,15:145-156. DOI:10.1002/jid.947 URL: http://hdl.handle.net/10.1002/jid.947
18. Goddard, J., Molyneux, P., & Wilson, J.O.S. (2004). Dynamics of Growth and Profitability in Banking. J. Money Credit Bank. 36, 1069–1090.
19. Greene, W. H. (2012). Estimation and inference in binary choice models. Econometric analysis (Seventh ed.). Boston: Pearson Education, pp. 730-755.
20. Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251-1271.
21. Hess, K., & Francis, G. (2004). Cost income ratio benchmarking in banking. Benchmarking: An International Journal, 3: 303-319. DOI: http://dx.doi.org/10.1108/14635770410538772.
22. Irawati, N., Maksum, A., Sadalia, I., and Muda, I. (2019). Financial Performance of Indonesian’s Banking Industry: The Role of Good Corporate Governance, Capital Adequacy Ratio, Non-Performing Loan and Size. International Journal of Scientific and Technology Research, 8(4), 22-26.
23. Javaid, S., Anwar, J., Zaman, K., & Gaffor, A. (2011), “Determinants of Bank Profitability in Pakistan: Internal Factor Analysis”. Mediterranean Journal of Social Sciences,2(1): 59-78. www.mcser.org/images/ stories/.../saura%20javaid.pdf.
24. Kosmidou, K. (2008). The deter
In-Text Citation: (Antwi, 2019)
To Cite this Article: Antwi, F. (2019). Capital Adequacy, Cost Income Ratio and Performance of Banks in Ghana. International Journal of Academic Research in Business and Social Sciences, 9(10), 168–184.
Copyright: © 2019 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
