A Cointegration Analysis of Key Internal and External Drivers of Profitability in Ghana’s Banking Industry: A Long-run and Short-run Approach.

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A Cointegration Analysis of Key Internal and External Drivers of Profitability in Ghana’s Banking Industry: A Long-run and Short-run Approach.

Abstract

The study employed four (4) internal determinants of bank profitability (LOGTA, LLPTA, NIGI & NETA) and two (2) external determinants (INF & MSG) as predictors of bank profitability (ROA). The explanatory variables accounted for 78.9 percent of the variations in (ROA) profitability during the period of study with the error term accounting for the remaining 21.9 percent. The independent variables show a mix in significance to both the long and short run estimate. The negative variables should be controlled in the short run and better channeled in the long run. The estimated coefficient of the ECM revealed that the speed of adjustment for errors in the long run is 71.3 percent and that in the short run, the explanatory variables LOGTA (logarithm of the individual bank’s total deposits), NIGI (non-interest income to gross income ratio), and INF (inflation; annual average increase in the Ghanaian consumer price index) significantly and positively contributed to commercial banks profitability in Ghana.

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