Evaluation of the Performance of Banks in Ghana Using Financial Ratios: A Case Study of Barclays Bank Ghana Limited (BBGL), Ghana Commercial Bank (GCB) and Agricultural Development Bank (ADB)

Abstract

Many banks have entered the Ghanaian banking industry in the past five years to take advantage of the increasing expenditure of the middle income Ghanaians, and the growing private sector. The banking industry is now experiencing keen competition. The question is whether the banks in Ghana are currently in good financial position to continue functioning as expected, especially as the world recently experienced financial crises.  The study therefore evaluated the financial health of the banks in Ghana by analyzing the published financial statements of Ghana Commercial Bank (GCB), Agricultural Development Bank (ADB) and Barclays Bank Ghana (BBG). Financial ratios were used to analyze the liquidity and profitability trends of the banks from the year 2005 to 2009. The performance of the banks was also compared with the industry’s average performance. The major findings from the study were that the banking business in Ghana is lucrative. The banks are making much sales revenue in excess of their cost. From 2007 to 2009, however, the expenses, especially the impairment charges, kept increasing, which reduced the net profits of the banks. This is attributed to increased provision for bad debts arising from rising inflation and interest rates, especially in the early part of 2009 which contributed to increased loan delinquency.

Keywords: Financial, ratios, Performance, Liquidity, Ghana