Determinants of Bank Risk in Ghana: Are there Differences between Local and Foreign Banks?

Abstract

This research examined, among other factors, the impact of the changing bank income generation activities on bank risk, how other types of bank funding strategies affect bank risk and the role of Corporate Governance on bank risk. It also examined whether these factors are significantly different between local and foreign banks in Ghana. A review of the financial sector, specifically, the banking sector in Ghana, indicates that more locally owned banks often collapse over time. Academic discussions and research about bank risk have considered some factors that are believed to influence bank risk such as ownership structures and income diversification. However, these studies often have results and findings which are divergent in views, on the extent or levels at which these variables affect bank risk. The study employed panel regression model with Breusch-Pagan Test for Heteroscedasticity and Wooldridge test for autocorrelation to examine how Fees/Commission Income (FINC), which is income generated from non-traditional activities of banks, Non-Deposit Funding (NDEPF) of bank activities by capital other than customers deposit, and Corporate Governance variables impact on the risk of banks in Ghana. Results of the study showed a significant positive relationship between NDEPF bank stability for banks in Ghana. Again, the findings showed that whiles Corporate Governance variables such as Board Gender ratio had a positive significant relationship for bank stability and profitability in Ghana. The interaction of FINC and NDEPF had a significant negative relationship on bank risk for banks in Ghana. With all conditions held constant, locally owned banks are riskier than foreign owned banks.