Evaluating Banking Profit Performance in Ghana during and post Profit Decline: A five Step Du-Pont Approach

Authors

  • Baah Aye Kusi UNIVERSITY OF GHANA
  • Kwadjo Ansah-Adu VALLEY VIEW UNIVERSITY
  • Albert Agyei VALLEY VIEW UNIVERSITY

DOI:

https://doi.org/10.5195/emaj.2015.79

Keywords:

Du-pont Model, Operating Profit Margin, Asset Turnover, Leverage, Interest burden, Tax Effect

Abstract

In this study we aimed at three objectives. First, identify and rank banks based on a composite score comprising of all five du-pont variables. Second, we identify variables in the five step du-pont set up that are most likely to influence bank ROE during and post profit declining periods. And third, we estimate a model to capture the variables that drive bank ROE during and post profit declining periods. We first establish from our rankings that, foreign banks in Ghana performed better during profit declining periods while the local banks performed better in post profit decline periods using the top ten banks as a benchmark in both periods. Employing Pearson correlation coefficients matrix, we recognized that operating profit margin, asset turnover and leverage were most likely to influence bank ROE in both time periods. We further employ OLS regression and find that bank ROE was impacted by operating profit margin and leverage during profit declining periods and post profit decline while tax effect added up in post profit declining periods.

Author Biographies

Baah Aye Kusi, UNIVERSITY OF GHANA

DEPARTMENT OF FINANCE

Kwadjo Ansah-Adu, VALLEY VIEW UNIVERSITY

BANKING AND FINANCE DEPARTMENT

Albert Agyei, VALLEY VIEW UNIVERSITY

DEPARTMENT OF ACCOUNTING

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Published

2015-11-12

Issue

Vol. 5 No. 2 (2015)

Section

Articles

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