Financial Performance Analysis of Distressed Banks in Ghana: Exploration of Financial Ratios and Z-score

Matey, Juabin (2019): Financial Performance Analysis of Distressed Banks in Ghana: Exploration of Financial Ratios and Z-score.

Abstract

A robust bank industry is a major player in the stability of an economy.This calls for an efficient management the banks to properly situate them in the context of robustness. By way of financial ratios and Z-score, the study analysed UT Bank’s financial performance prior to the recent bank sector reforms in Ghana. Annual financials over a ten year period (2007-2016) were used. Debt management practices of UT Bank per the results obtained were quite on the hind side. Leverage and risk variables were poorly handled. Inability to meet creditors’ claims would have been eminent considering the average mean values of debt-to-assets and debt-to equity ratios of 0.76 and 0.90 respectively. The entire bank sector will be put on a sound footing if credit management practices of individual banks are refreshed. The bank industry regulator should tighten its supervisory and monitoring role over banks to help detect early signs of non-performing banks. The study further recommends that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percentage for secured loans of net owned funds of the bank.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank, Debt, Distress, Performance, Credit Management Practice, Z-score
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

References

REFERENCES

Abor, J.Y., Gyeke-Dako, A., Fiador, V.O., Agbloyor, E.K., Amidu, M., & Mensah, L. (2019). Money and banking in Africa loan portfolio and credit management. Advances in African Economic, Social and Political Development, Springer Nature. doi.org/10.1007/978-3-319-77458-9

Aguenaou, S., Lahrec, A., & Bounakaya, S. (2017). Analyzing banks’ efficiency as a measurement of performance in the Moroccan context: Application of CAMEL Framework. International Review of Research in Emerging Markets and the Global Economy, 3(1), 1105-1121

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 189–209.

Altman, E.I. & Hotchkiss, E. (2006). Corporate financial distress & bankruptcy. 3rd edition. J. Wiley & Sons. Hoboken, New Jersey

Attefah, E.K, & Darko, E.A. (2016). Financial ratios approach to evaluating financial performance of Cal Bank Ghana from 2010 to 2014 International Journal of Academic Research in Business and Social Sciences, 6(6), 150-176

Basel Committee on Banking Supervision, BCBS. (2010). Basel III and financial stability. Bank for International Settlement

Berger, A. (1995). The profit-structure relationship in banking – Tests of market-power and efficient-structure hypotheses. Journal of Money, Credit and Banking, 404 420.

Central Bank of Nigeria [CBC] (2010). Annual report bullion; January-march

Ghana Banking Survey (2019). Banking reforms so far: Topmost issues on the minds of bank CEOs. Available at https://www.pwc.com/gh/en/assets/pdf/ghana-banking-survey 2019.pdf. Retrieved on 25th October, 2019

Kaufman, G. (1966). Bank market structure and performance: The evidence from Iowa. Southern Economic Journal, 429-439.

Lepetit, L., Nys, E., Rous, P. & Tarazi, A. (2008). Bank income structure and risk: An empirical analysis of European banks. Journal of Banking and Finance, 32(8), 1452-1467

Li, X., Tripe, D., & Malone, C. (2017). Measuring bank risk: An exploration of z-score

Prakash, P., Iqbal. T. H., Jennifer, M. Q., & Nympha, R.J. (2017). Capital Structure and Financial Performance of Banks, International Journal of Applied Business and Economic Research, 15(23), 300-312

Nyalatorgbi, E. (2019). Bank of Ghana closes seven banks in banking crisis: African Agenda, Third World Network Africa, 21(3), 33-36

Rhoades, S. (1985). Market share as a source of market power: Implications and some evidence. Journal of Economics and Business, 3(4), 343-355.

Seelanatha, L. (2010). Market structure, efficiency and performance of banking industry in Sri Lanka. Banks and bank systems, 5(1), 65-75

Sheikh Waqas, A. (2005). Financial statement analysis of bank, Falah. Virtual University Pakistan, Pakistan

Shepherd, W. (1986). Tobins’q and the structure-performance relationship: Comment. The American Economic Review, 76(5), 1205-1210

Smirlock, M. (1985). Evidence of the (non) relationship between concentration and profitability in banking. Journal of Money, Credit and Banking, 17(1), 69-74.

Srairi, S. (2013). Ownership structure and risk-taking behaviour in conventional and Islamic banks: Evidence for MENA countries. Borsa Istanbul Review, 13(4)

Taboi, L. (2017). How the Kenyan banks went under African Business.

Tassev, L. (2019). Three bank failures open new chapter in never-ending financial crisis

Torna, G. & DeYoung, R., (2013). Nontraditional banking activities and bank failures during the financial crisis. Journal of Financial Intermediation 22, 397 421