ABSTRACT
The banking industry in Ghana has undergone a major shift in focus, partly in response to the advent of global financial liberalization and innovation. The industry increased the number of banks to thirty-four (34) as at December, 2016 and subsequently to thirty-seven (37) in 2017.
The Ghanaian economy also experienced a series of macro-economic shocks, which impacted adversely on the banking industry, exposing weaknesses in the governance structures, the industry also experienced a tighter regulatory and governance landscape with the enactment of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), together with a stream of initiatives to further strengthen and stabilize the banking sector.
The study attempts to investigate the impact of corporate governance on the performance of local banks in Ghana. The study utilized a panel estimation method over the period 2008-2018. The estimation results of the study shows that even though board composition had a positive impact on local bank performance it was not statistically significant. Additionally, the impact of the number of women on the board of local banks (gender diversity) was positive but was not statistically significant different from zero.
However, the study found that the effect of the size of the board of local banks on their performance was positive and statistically significant at five percent level. Also, the study confirmed a non-linear relationship between the size of the board of local banks and their performance, particularly in an inverted U-shaped relationship. This implies that the increase of the size of the board has a positive effect on local banks performance but only to a certain point where any further increase has a negative effect on performance. The threshold value (optimum number) of members of the board of local banks was determined by the study to be nine (9). The study thus recommends that the regulator should encourage the appointment of women on the boards of local banks. Also, non-executive directors with in-depth industry expertise should be appointed unto the boards of local banks. Lastly, the study recommends the number of persons on the board of local banks should not go beyond nine (9) members.
CHAPTER ONE
OVERVIEW
Background
The job of banks is fundamental to any economy. They make available financing to business undertakings, access to installment frameworks and an assortment of retail money related administrations for the economy on the loose. In the first place, they improve the data challenges among financial specialists and borrowers by checking the last mentioned and guaranteeing proper use of the investors’ assets. Second, they offer between worldly leveling of hazard that can’t be expanded at a specific point in time alongside protection to investors against unforeseen utilization stuns. Third, financial institutions add to the development of the economy. Fourth, they have a fundamental influence on corporate administration. Their relative significance diverse differs considerably throughout most nations, and they are very vital to the economic structure (Allen & Carletti, 2008)
Throughout the years, the worldwide financial industry has been confronting disillusioning returns and languid development. For seven back to back years, its ROE has been stuck in a barely characterized range, between 8 percent and 10 percent—a level that most think about the business’ expense of value. At 8.6 percent for 2016, ROE was down a full rate point from 2015. In addition, the industry’s worldwide income development rate eased back to 3 percent in 2016, down from a yearly normal of 6 percent over the former five years (Chironga, Cunha, & De Grandis, 2018) Be that as it may, Africa is the worldwide financial industry’s second-most gainful district: the ROE of its banks in 2017 remained at 14.9 percent, second just to Latin America and tantamount to different locales, for example, Emerging Asia and the Middle East. The ROE of African banks was more than twofold the 6 percent accomplished by banks in created markets. African banks’ benefit in 2016 was imperceptibly
higher than in 2012, driven by improved edges—in spite of the fact that these increases were to a great extent counterbalanced by higher hazard costs (Chironga et al., 2018)
In spite of this great execution both as far as monetary part changes and financial development, money related markets in Africa are extensively less well-created than those somewhere else on the planet on practically all proportions of budgetary improvement (Green, 2013). Truth be told, the money related parts of most African nations remain very immature even by the guidelines of other friend low-pay nations, and the African budgetary advancement hole is gigantic; so is the monetary incorporation hole(Allen & Carletti, 2008). The advancement hole relates to both banking and non-bank frameworks.
Despite its less-created status, the African monetary part endured the emergency strikingly well, particularly when contrasted with other creating areas. There are a few purposes behind this result: first, the by and large feeble reconciliation with the remainder of the worldwide monetary segments implied the potential for direct infection was insignificant. Second, even in nations, for example, South Africa where the budgetary part is very much coordinated with the remainder of the world, disease impacts were negligible, particularly in the financial area, generally because of powerful guideline of the financial divisions in Africa(Kose, Prasad, Rogoff, & Wei, 2010). Third, frail money related extending may likewise have attempted to upgrade the versatility of the African budgetary part through decreased presentation (low portion of private segment credit with respect to GDP).
