Bank-Specific Risks And Performance Of Universal Banks In Ghana

ABSTRACT

The respective impact of the factors that drive bank profitability has been a great source of

debate within academia and the banking industry. The objective of this empirical work is to fill

the knowledge gap by assessing the impact of selected bank-specific risks on financial

performance within the local context of a developing country. The study examined into details

the trends in bank-specific risks and examines the effects of these idiosyncratic factors on bank

performance in Ghana. Factors investigated as part of this study were categorized into Risk and

Non-risk factors. The study focused on three bank-specific risks; Credit, Liquidity and

Operational exposures.

To probe the hypothesized adverse effects of bank-specific risks, a holistic analysis was

performed using a panel dataset of sixteen (16) universal banks in Ghana with secondary

financial data collected for a ten-year period (2009 – 2018). A random effects model was

estimated with further analysis conducted using summary statistics and a correlation matrix. The

findings demonstrate that operational risk, bank size and capitalization significantly influence the

financial performance of banks. Directionally, liquidity risk has a positive effect on performance

as well as a strong, positive association with credit exposures of a bank. Practical implications of

the findings include the formulation of strategies to jointly mitigate credit and liquidity risk and

implementation of robust event reporting systems to manage operational risks by banks.