Abstract

Previous Ghanaian governments attempted to use Ghana’s well-developed banking system to grow the economy. Bad loans caused the banks to suffer great losses during the late 1980s, and decline in the cedi value caused a rise in the banks external loans. In 1988, the government initiated financial reforms to strengthen the banking sector. The reforms aimed to improve profitability, efficiency and productivity of banks. In spite of these reforms in 1990s, banks’ performance has remained poor with substantial gaps in service delivery to private agents. There is sufficient empirical evidence that poor performance is manifest in low performance of bank indicators, including: high levels of credit risk to private agents, poor quality loans, limited and or inadequate capitalization, operational inefficiencies, higher incidences of non-performing loans, higher levels of liquidity risk; among others. Empirical evidence clearly shows that studies focusing on Ghana’s financial sector are still scanty and limited. The study seeks to investigate the determinants of banks ‘profitability in Ghana for the period 1988 to 2011 using Economic Value Added (EVA) technique to measure performance. The study evaluates two performance yardsticks to determine the best alternatives. The result of the study suggested economic value added as the best measurement as against the standard accounting measurement namely; ROA. Inflation was registered not to be affected Ghana’s bank performance. The study results draw some implications for policy that helps to improve performance of the banking sector in Ghana.

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