Abstract

Banks and non-bank financial institutions, supported by efficient money and capital markets ensure the successful operation of the financial system in an economy. Efficient banking industries must be capable of measuring, analyzing and hedging or otherwise limit all types of risk faced resulting from transactions undertaken.The average efficiency of the individual banks operating in an industry reflects the industry’s efficiency. The purpose of this study was to measure the efficiency of banks operating in the Ghanaian banking industry, using financial ratios. The study assessed the banks’ profit efficiency, cost efficiency, efficiency in improving asset quality, liquidity, financial leverage and exposure to foreign currency exchange rate risk between 2005 and 2011. The findings of the study established that all the banks maintained sufficient capitalization but the extent of asset deterioration is amongst the highest in sub-Saharan Africa. Also, their cost and profit efficiencies have been declining gradually over the years. The banks however maintained adequate liquidity and have low exposure to foreign currency exchange rate risk and that gives credence to a performing stock market.

Key words: Financial system, stock exchange, Ghanaian banking.