Effect Of Basel Iii Liquidity Requirement On Bank Profitability In Ghana

Abstract

The study investigates the impact of Basel III liquidity requirements on Ghanaian banks and their profitability. Using an unbalanced data set of 14 banks over a 10-year period, the one-step GMM was used to estimate the effect of Basel III liquidity requirements on bank profitability. The study found that bank specialization (SPEC) had a positive and statistically significant relationship with bank profitability under all three objectives or models. However, inflation showed a negative relationship only under objective or model one and two, and management efficiency showed a negative relationship with ROA under objective or model one but a negative insignificant relationship under objective or model two and three. The GDP growth rate had no significant relationship with bank profitability. Regarding the main variables of interest, Liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) showed a positive and statistically significant relationship with bank profitability on an individual basis, but the variable jointly exhibited a negative statistically significant relationship with bank profitability (ROA); Meaning a percentage increase in these variables result to a decrease in profitability. The study concludes that Basel III liquidity requirements have a mixed effect on bank profitability in Ghana, based on the Basel committee's condition that banks must meet all two regulations.