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Assessing the Explanatory Power of Book to Market Value of Equity Ratio (BTM) on Stock Returns on Ghana Stock Exchange (GSE)
(University of Ghana, 2012-06) Brobbey, F.O.; Aboagye, A.Q.Q.; Osei, K.
The objective of this research was to assess the explanatory power of Book-To-Market value of equity ratio (BTM) and firm size on portfolio returns in Ghana. This study also sought to compare the strength of BTM to size in explaining returns. The last objective was to measure the efficiency of Fama and French (1992) Three-Factor Model on the Ghana Stock Exchange (GSE) over the period January 1997 to December 2009 and to compare the Three-Factor Model to the Capital Asset Pricing Model (CAPM). The sample includes only non-financial firms that traded on the Ghana Stock Exchange over the test period. The sample size increased from eleven (11) non-financial firms in 1997 to twenty-one (21) non- financial firms in 2009. Each year, six Size-BTM sorted portfolios are formed namely; Big-High (BH) portfolio which consist of stocks with big size and high BTM ratio, Big-Medium (BM) portfolio which contains stocks with big size but medium BTM ratio , Big-Low(BL) portfolio which consist of stocks with big size and Low BTM ratio, Small-High (SH) portfolio which contains stocks with small size and high BTM ratio, Small- Medium (SM) portfolio contains small size and medium BTM ration whilst Small-Low (SL) portfolio contains stocks with small size but low BTM ratio. This research found out that, CAPM alone could not predict portfolio returns and that by adding the two other factors, namely the size effect and the book-to-market ratio effect, to the CAPM to derive the Fama and French (1992) Three- Factor Model improves the efficiency of the explanation. It was therefore concluded that The Fama and French Three - Factor Model consisting of Beta, BTM and firm size could explain risk in portfolio return better than the beta alone as contended by the traditional CAPM. This study also identified that BTM effect was stronger on the Ghanaian market than the size effect as identified by Fama and French (1992) on the US market.
Credit Risk of Banks in Africa: Determinants and Impact of Credit Risk on Banks’ Lending Rate and Bank Stability.
(University of Ghana, 2015-07) Appiah, M.A.F.; Agbloyor, E.K.; Aboagye, A.Q.Q.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
Purpose – This research is to identify the determinants of credit risk of banks in Africa and examine the impact of credit risk on banks’ lending rates and banks’ stability. Design/methodology/approach – This study considers 197 banks across 29 countries in Africa over the period 2008-2012. Africa was divided into three income brackets according to the 2010 World Bank classification. A large sample of 197 banks was used in order to have enough banks in each income bracket. Sampling was done focussing on the banks and not countries. Multiple regressions were specified and estimated using the Prais –Winstein estimation technique. This estimation technique was adopted due to the heteoroscedatic and serially correlated errors of the traditional generalized least squares technique. Findings – The results of the study suggests that the predictive power of bank specific and macroeconomic variables on credit risk differs among the income brackets within which the bank operates. Credit risk was also found to have an impact on lending rates only in the low income bracket and has an impact on bank stability only in the low middle income bracket. Credit risk however has no impact on banks’ average lending rate and banks stability in the upper middle income bracket. Originality/value – This study, to the best of the knowledge of the author, is the first to consider credit risk in banks and its impact on lending rate and stability in Africa by considering the three income brackets separately. This is important since Africa is not a homogenous unit and countries within the continent have different levels of income and development. Policy makers and bank managers therefore should consider this study so as not to go in for inapplicable policies and regulations towards credit risk, lending rates and stability of banks. Keywords: Credit risk, Lending rates, Bank stability, Africa, Income bracket.
Demand for Treasury Bills in Ghana, Looking Beyond Risk
(University of Ghana, 2013-06) Odarno, V.G.; Aboagye, A.Q.Q.; Andoh, C.
Investment is a very important activity in the life of every income earner. It basically entails setting aside part of one’s income into an investment vehicle to yield returns in a form of reserving and or increasing the value of the initial amount invested. Treasury bills are one of the avenues for investing by income earners since it yields guaranteed returns over various time periods/durations. This study investigates whether there are behavioral factors influencing the demand for treasury bills in Ghana. A convenient sampling method was adopted in the collection of data from workers in Greater-Accra region. A logistic regression analysis was conducted to determine the behavioral factors that drive investment in treasury bills in Ghana. The study found that there are behavioral factors influencing the demand for treasury bills in Ghana. Education, sociability, number of years of work experience, occupation and saving motives were found to be the main behavioral factors that influence the demand for treasury bills in Ghana. However, financial literacy and age were found to be insignificant in influencing the demand for treasury bills. The study has implication for investment organizations that need to need to know the behavioral attributes of Ghanaian workers towards investing in order to strategize in selling their investment products.
Determinants of Universal Bank Lending Rate in Ghana
(University of Ghana, 2015-07) Adoah, I.; Aboagye, A.Q.Q.; Osei, K.A.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
The factors that determine the level of universal bank lending rate are important to policy makers, investors, the banking industry and the public at large. The market for loans from universal banks is competitive and rates on these loans have tendency to reduce the deposit rate and increase the cost of borrowing. This study sought to investigate the determinants of lending rates in the universal banks in Ghana by answering the, what are the determinants of lending rates of Universal banks in Ghana. In order to quantify the effect of the various factors on lending rate during the period, we use panel estimation techniques. The study found that factors that affect the determinants of the lending rate in Ghana are Policy rate, Exchange rate, Treasury bill rate, GDP, Inflation, Bank size and HHI. The study recommends participation of all the stakeholders on reviews of existing policies on stability and sound practices in the economy. Banks should also explore internally and industry driven strategies that will militate against some of the bank specific factors associated with higher lending rate in Ghana.
Explaining Bank Liquidity in Ghana
(University of Ghana, 2015-07) Na-Ihmatu, S.; Aboagye, A.Q.Q.; Osei, K.A.; University of Ghana, College of Humanities, Business School, Department of Banking and Finance
Holding adequate liquidity is very crucial for the survival of banks. Nevertheless, reserving liquidity in excess hinders the development of interbank markets and suggests that banks are forgoing financial intermediation (hence, returns) and are inefficient. It is against this background that this study sought to find explanations on why bank liquidity in Ghana has for about a decade now remained above global average levels. In attaining this objective, I argued that a more complete liquidity indicator will be a better measure than the traditional measures. With an unbalanced data set of 22 banks over a 7-year period spanning 2007 to 2013, the ratio of liquidity created to total assets is constructed. This ratio captures illiquidity and as such, is employed as an indirect measure of bank liquidity. Subsequently, based on the Hausman’s test, the random effects model is utilized in estimating the factors that explain bank liquidity in Ghana. Findings of the study confirmed that, indeed, Ghanaian banks are highly liquid. Capital, size, ratio of loans to total assets and annual average inflation showed a positive and significant relationship with liquidity.Net interest margin, industry concentration and GDP growth rate exhibited a negative significant relationship with liquidity of banks. Growth in money supply was insignificant in explaining liquidity of banks. The study recommended that, the Central Bank considers the more comprehensive way of measuring liquidity as it quantifies liquidity creation, which is an important function of banks. It is also a good predictor of financial crunches and is a more complete measure of bank liquidity unlike the traditional measures. It is also recommended that banks decrease their equity, net interest margins and the ratio of loans to total assets to cut down excess liquidity reserves. Policies that enhance competition should also be enacted if the need be to further boost liquidity.
Impact of Bank Recapitalisation on the Profitability of Banks in Ghana
(University of Ghana, 2014-07) Ametei, C.T.; Aboagye, A.Q.Q.; Mensah, L.; University Of Ghana, College of Humanities, Business School, Department of Banking and Finance
The scenario of banking in Ghana has been characterised by low capitalisation which exposes the financial system of the country to severe swallowing, together with widespread bank distress as a result of the prolonged economic crisis. Consequently, bank investments have been hampered. It was therefore imperative for the Bank of Ghana to take drastic measures of bank recapitalisation, which is the core of global bank reforms. The Bank of Ghana, in 2009, issued a directive for all banks and non-bank financial institutions to increase their equity capital. Class one banks were to increase their capitalisation to GH¢60.0 million. But in 2012, another directive was issued compelling new entrant class one banks to have a minimum capitalisation of GH¢120 million (in case of a Ghanaian Bank) and in the case of foreign ownership of banking business, it is not less than GH¢120.0 million. This was to help expand the economy and strengthen existing banks to be able to invest in “big ticket” deal and serve as a safety net for banks in their credit supply. While re-capitalisation of Ghana banks may address this concern, the effect of the exercise on banks‟ performance remains an empirical one. The main problem addressed in this study, is whether recapitalisation of Ghanaian banks has improved their profitability. I further investigated the effect of macroeconomic factors on the performance of the Ghanaian banking system over the period before and after the recapitalisation and also how the imposed regulatory increase in capital have affected the lending behaviour of the banks over the period. This study adopted Athanasoglou et al. (2005) model of Generalised Method of Moments (GMM) using the paradigm of Arellano and Bond (1991) of one-lagged GMM to find the impact of bank recapitalisation exercise in Ghana on the profitability performance of banks. It also investigates whether economic factors have effect on the relationship between regulatory capital increase and the profitability of banks. It also used the student‟s t-test to test the equality of means of profitability measures before and after the recapitalisation period. The study employed secondary data which consist of annual bank level seven-year data from 2007 to 2013, gotten from the Bank of Ghana, for 22 banks out of the 26 bank existing as at 2013. The 2007 – 2013 annual average consumer price indices and the Gross Domestic Product annual growth rate was the macroeconomic variables used for the analyses. The study found that, the Return on Equity (ROE) using the test of equality of means was insignificant. The test on equality of means for Return on Assets (ROA) using the t-test of equality of means were insignificant. The result means there is no statistical difference between the mean of pre-recapitalisation ROE and post-recapitalisation of the banks. The same applied to pre and post-recapitalisation ROA. But the test was significant for the pre-recapitalisation After-Tax Profit and post-recapitalisation After-Tax Profit. This means that, the recapitalisation exercise have helped increase the After-Tax Profit significantly. From the empirical result, the recapitalisation exercise had a negative, significant impact on banks‟ profitability. This means that, the regulatory increase in capital for banks in Ghana, have not helped the profitability of the Ghanaian banking industry as returns to shareholders is concerned. This study concludes that while recapitalisation raised the capital base of the banks, it is not all the time that it transforms into good financial intermediation. The study recommends that banks need to diversify their investment and should be more of the long-term type. The government too has a role to play in providing necessary enabling economic environment to ensure that the cost of doing business in Ghana is reduced significantly to allow the banks to make more profit, since funding from banks will no more be a problem.
Liquidity Risk and Bank Profitability in Ghana
(University of Ghana, 2013-06) Siaw, S.; Aboagye, A.Q.Q.; Gemegah, A.
The study examines the determinants of liquidity risk of Ghanaian banks and how it affects their profitability. Theory on the effects of liquidity risk on bank profitability is mixed; while some studies conclude that high liquidity risk increases bank profitability through high net interest margins, others indicate that it reduces profitability due to the high cost associated with securing funding at such times. With an unbalanced data set of 22 banks over a 10 year period spanning 2002 and 2011, the random effects GLS regression based on the Hausman test is used to estimate the determinants of bank liquidity risk. The instrumental variables regression through the two stage least squares (2SLS) approach is applied to estimate the effects of liquidity risk on bank profitability due to the endogenous nature of liquidity risk as a bank profitability determinant while controlling for other variables (bank size, capital adequacy, credit risk, operational expenditure, non-interest income, industry concentration and change in GDP). The study employs the financing gap ratio (FGAPR) as the measure of liquidity risk (dependent variable) with bank size, liquid assets ratio which is further divided into risky and less risky liquid assets, non-deposit dependence, ownership type, industry concentration and change in inflation as the explanatory variables. While bank size, non-deposit dependence and change in inflation exhibit a positive and a statistically significant relationship with liquidity risk (financing gap ratio); meaning that an increase in any of these variables leads to an increase in liquidity risk, risky liquid assets, less risky liquid assets and industry concentration show a negatively significant relationship. Ownership structure has no significant relationship with the financing gap ratio (dependent variable). In order to ascertain the robustness of the results, the ratio of net loans to total deposits (NLD) as an alternative measure for liquidity risk is also applied and the results show consistency with the results obtained from the use of the financing gap ratio as a measure for liquidity risk. Again, the results from the use of instrumental variables for liquidity risk while controlling for other variables (determinants) also show a positive relationship between liquidity risk (both the financing gap ration and the ratio of net loans to total deposits) and bank profitability measured by the return on assets (ROA) and the return on equity (ROE). The study suggests that banks institute strategies that provide effective diversification in the sources of funding while exploiting deposits as a stable cheap source of funding in order to mitigate their liquidity risk exposure. Again, banks in Ghana should strengthen their treasury departments mandated to manage liquidity risk to ensure a sound process for identifying, measuring, monitoring and controlling liquidity risk in order to maximize the positive risk return relationship.

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