Financial Performance and Liquidity Trends of Banks in an Emerging Economy: Evidence from Ghana

Michael Ayikwei Quarshie and Reginald Djimatey

Asian Journal of Social Sciences and Management Studies, 2020, vol. 7, issue 2, 135-142

Abstract: The purpose of this study was to analyse financial performance and liquidity trends of banks in the financial sector of Ghana. A review of literature on performance and liquidity was conducted owing to the challenges the banks are confronted with. The study analysed 180 annual reports of the banks during the periods 2006-2015. The analysis revealed that banks were relatively liquid in most of the study periods except in the years 2013 and 2014, where the average liquidity was 1.54 and 1.41 respectively. The highest liquidity of 2.183 was recorded in 2011, which indicates that Gh¢ 2.183 of current assets available covers Gh¢ 1 of current liabilities. The financial performance of the banks was fairly intermittent during the study periods. The lowest financial performance of the banks was recorded in the year 2006. An average financial performance of 6.74% and 0.83% for return on equity (ROE) and return asset on (ROA) respectively was recorded in 2006. While the year 2014 recorded the highest financial performance of 24.23% for return on equity and 4.57% for return on asset owing to favourable economic conditions in the country in that year. The study recommends that bank managers should adopt effective liquidity management to ensure the banks are operating profitably. Since it has been empirically proven that high liquidity rates will provide for better financial results.

Keywords: Liquidity; Banks; Financial performance; Return on equity; Return on assets; Current ratio; Acid-test ratio. (search for similar items in EconPapers)
Date: 2020
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