Effect of Bank Innovations on Financial Profitability and Efficiency of Banks in Ghana

Abstract

The study was motivated by the growing innovation in the financial system in recent times. Though the move for innovation in the Ghanaian context has been slow relative to the advancements in developed economies, its impact in bank profitability and efficiency cannot be over emphasized. Hence, this study took the challenge to study the effect of bank innovation on Ghanaian banks’ profitability and efficiency between 2013 and 2017. The study employed a quantitative research approach in establishing the extent of bank innovation on banks’ profitability and efficiency. Data for the study was derived from the published accounts of Thirty – Four (34) banks between 2013 and 2017. Using the panel data, regression analysis was executed using fixed effect which emerged as the most appropriate and preferred model from the Hausman test. The results imply that innovation has a positive impact on profitability and efficiency. These findings are in consonance with the outcomes of Sampong (2016), Jiménez-Jiménez and Sanz-Valle’s (2011), Aduda and Kingoo (2012). The results also conform with Sibler’s 1983 financial innovation theory which explains that the reason for firms’ innovation is higher profitability. Notwithstanding, the results also showed that profitability and efficiency of the banks over the period seems to be degrading as banks increased their operating assets and loans (based on the control variables). Overall, the results point to the fact that innovative moves by Ghanaian banks led to improved profitability and efficiency; hence, banks have motive to engage more in value – adding innovations.