Alex Abiti; William Adzraku , pp. 33. MAM/Sektionen för Management, 2011.
The sustainability of banks profitability is very important to national economy. This is because banking institution serves as financial intermediary and hence supports the flow of funds from the borrower to the user of fund to grow economic activities. However banks profitability is affected by various variables both internal and internal. Some of these may be control by the banks whiles other may not be controlled internally.
To investigate the impact of financial structure and macroeconomic variables on listed banks profitability in Ghana, secondary financial data of all the seven (7) listed banks were collected from the Ghana Stock Exchange. The profitability variables or ratios used are return on equity (ROE), return on asset (ROA) and net profit net interest margin (NIM). The financial structure components considered are the long-term debt to the total capital; short-term debt to total capital. The macroeconomic variables include the GDP, inflationary rate and the Exchange rate (GH¢ per US$). A correlation matrix was run using SPPS regression tool with profitability ratios as the dependent variables whiles the macroeconomic and the financial structure variables are considered as the independent variables.
The results were mix: the ROA is negatively related to both total debt and short term debt and the relationship are significant. However, ROA is positively related to long term debt but not statistically significant. ROA is also negatively related to GDP and not statistically significant. ROA is positively related and statistically significant to exchange rate. Again, inflation is positively related to ROA but not significant.
ROE on the other hand is statistically significant and positively related to short term debt and total debt. Exchange rate, long term debt is negatively and significantly related to ROE while inflation is positively but insignificantly related to ROE. However, ROE is insignificantly but negatively related to GDP.
Net Interest Margin (NIM) is significantly and positively related to short term debt but insignificantly and positively related to inflation. NIM is, however, significantly and negatively related to total debt. This implies that an increase in sales growth, total debt and firm size is likely to result in a fall in NIM. Also, exchange rate, GDP and long term debt are negatively and insignificantly related to NIM. It is important to note that negative relationship between dependent variable and independent variable implies that if the dependent variable increases then the independent variable decreases.
Ghanaian banks take advantage of the high inflation regime to increase cost of borrowings to their valued customers to increase their net interest margin and hence increase profitability while strategically using short-term debt in their financial structure to avoid paying long-term high cost of borrowings which will economically destroy shareholders value. Again the banks also increase their assets base as the economy grows (GDP) to improve their profitability in terms of returns on equity through higher banks size to meet all customers and economic activities
The study provides an empirical conclusion that listed Ghanaian banks use 80.23% debt and 17.77% equity hence the capital structure of Ghanaian banks is hugely skewed toward debt. However, the debt structure of listed Ghanaian banks indicates more than 70% short term debt and less than 9% long term debt. Thus the impact of capital structure and macro-economic variables on profitability of Ghanaian listed banks is such that short term debt positively influences profitability and long term debt negatively affects profitability.