Debt Policy and Profitability of Commercial Banks in Ghana

The debt policy of commercial banks is important even though they are highly leveraged entities. The obvious lack of consensus on the appropriate capital structure requires a robust research methodology to study the profitability of these entities in a developing economy. Panel data analysis provides a robust result which indicates significant reliance on short term debt by commercial banks in Ghana. The debt policy of corporate entities is a strategic decision by the board of directors which can be derived from both national and international economic realities. The fact that levered firms can benefit from the so- called tax shield does not permit a highly regulated institution to deal with debt as a normal game. Bankruptcy cost, agency cost and managerial self interest should serve as corporate guiding posts. The negative relationship between commercial bank size and profitability, provides a signal to their management to be focused and set their strategic eyes on the dynamics of the banking indystry in Ghana.