Influence of banking regulation and supervision on banks’ performance

https://doi.org/10.35912/amor.v5i2.1832
Published: Jan 9, 2024

Abstract:

Purpose: The specific objectives of this study were to examine the effect of supervision on bank performance, ascertain the effect of regulation on bank performance, and assess the challenges faced by banks in the implementation of bank regulations.

Research Methodology: This study adopted a descriptive survey approach using data collected from all employees of a commercial bank in Accra Newtown. Data were analyzed using descriptive and inferential statistics from IBM SPSS Statistics 24.

Results: A positive relationship was found between banking regulation and bank performance and between supervision and bank performance. The study identified poor communication, lack of resources, resistance to change, and inefficient processes as the major challenges faced by banks in implementing strategies and achieving their objectives.

Limitations: This study was limited to a commercial bank in Ghana, thus making it inappropriate to generalize the results.

Contribution: To improve communication, there is a need for closer collaboration between banks and external regulatory bodies considering the positive effect of bank regulation on bank performance. From this study, there is a need for continuous monitoring and evaluation of processes to ensure that banks comply with regulations.

Practical Implications: There is a need to maintain and improve effective regulatory and supervisory frameworks, as they positively affect bank performance.

Novelty: This study examines banking regulation and supervision of bank performance with evidence from a commercial bank in Accra New Town, a suburb of Accra in Ghana.

Keywords:
1. Bank regulation
2. bank supervision
3. performance
4. commercial bank
Authors:
1 . Aminata Issoufi Boubacar
BlueCrest University College, Ghana
2 . Anita Bans-Akutey
BlueCrest University College, Ghana
https://orcid.org/0000-0003-0305-9377
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How to Cite
Boubacar, A. I., & Bans-Akutey, A. (2024). Influence of banking regulation and supervision on banks’ performance. Annals of Management and Organization Research, 5(2), 99–113. https://doi.org/10.35912/amor.v5i2.1832
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Issue & Section
Vol. 5 No. 2 (2023): November
Articles
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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

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    Abdullah, A. (2017). A comparison between Malaysia and Indonesia in Islamic banking industry. Research Journal of Business and Management, 4(3), 276-286.

    Abidin, Z., Prabantarikso, R. M., Wardhani, R. A., & Endri, E. (2021). Analysis of bank efficiency between conventional banks and regional development banks in Indonesia. The Journal of Asian Finance, Economics and Business, 8(1), 741-750.

    Agarwal, S., Lucca, D., Seru, A., & Trebbi, F. (2014). Inconsistent regulators: Evidence from banking. The quarterly journal of economics, 129(2), 889-938.

    Alain Gilles, F. T., Grace, A. E., Hans Patrick, B. M., Arlette, K. T., & Léopold, D. W. (2020). Explanatory Factors for the Manipulation of Accounting Records in Cameroon: The Role of the Financial Situation and the Characteristics of the Enterprise. Journal of Accounting, Finance & Management Strategy, 15(2).

    Alam, A. H. M. N. (2017). The Role of Regulation on Bank Competition and Stability in Asean-5 Countries. University of Malaya (Malaysia).

    Almaw, S. (2020). The Effect of Bank regulation on The Banks’ performance: A literature review approach. GSJ, 8(7).

    Anarfo, E. B., & Abor, J. Y. (2020). Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role? Research in International Business and Finance, 51, 101070.

    Arif, N. M., Nasir, A., Rodrigo, R. S., Bujang, I., & Supar, S. J. (2023). The profit efficiency analysis of malaysian commercial banks: A Data Envelopment Analysis (DEA). Annals of Management and Organization Research, 4(3), 211-224.

    Balasubramnian, B., & Palvia, A. (2018). Can short sellers inform bank supervision? Journal of Financial Services Research, 53, 69-98.

    Banerjee, R. N., & Mio, H. (2018). The impact of liquidity regulation on banks. Journal of Financial Intermediation, 35, 30-44.

    Bans-Akutey, A. (2023). Effect of Technological Development on Organisational Excellence for Selected Telecommunication Companies in Ghana: The Mediating Role of E-Leadership.

    Barth, J. R. (2019). Regulatory responses by countries to banking/financial crises (Vol. 13, pp. 1): MDPI.

    Barth, J. R., Lin, C., Ma, Y., Seade, J., & Song, F. M. (2013). Do bank regulation, supervision and monitoring enhance or impede bank efficiency? Journal of banking & finance, 37(8), 2879-2892.

    Beck, T., Da-Rocha-Lopes, S., & Silva, A. F. (2021). Sharing the pain? Credit supply and real effects of bank bail-ins. The review of financial studies, 34(4), 1747-1788.

    Beck, T., Demirgüç-Kunt, A., & Pería, M. S. M. (2011). Bank financing for SMEs: Evidence across countries and bank ownership types. Journal of Financial Services Research, 39, 35-54.

    Begenau, J., & Landvoigt, T. (2022). Financial regulation in a quantitative model of the modern banking system. The Review of Economic Studies, 89(4), 1748-1784.

    Boateng, E., & Oduro, F. (2018). Predicting microfinance credit default: a study of Nsoatreman rural bank, Ghana. Journal of Advances in Mathematics and Computer Science, 26(1), 1-9.

    Calice, P., Leonida, L., & Muzzupappa, E. (2021). Concentration-stability vs concentration-fragility. New cross-country evidence. Journal of international financial markets, institutions and money, 74, 101411.

    Choi, D. B., Holcomb, M. R., & Morgan, D. P. (2020). Bank Leverage Limits and Regulatory Arbitrage: Old Question?New Evidence. Journal of Money, Credit and Banking, 52(S1), 241-266.

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    Deli, Y. D., & Hasan, I. (2017). Real effects of bank capital regulations: Global evidence. Journal of banking & finance, 82, 217-228.

    Djankov, S., Georgieva, D., & Ramalho, R. (2018). Business regulations and poverty. Economics Letters, 165, 82-87.

    Eden, R. O. P. (2015). Effect of agency banking services on customer satisfaction: A case of Kenya Commercial Bank agent system in Ongata Rongai, Kenya.

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    Endri, E., & Marlina, A. (2020). Impact of internal and external factors on the net interest margin of banks in Indonesia. Banks and Bank Systems, 15(4), 99-107.

    Eskinder, B. (2016). Assessment on Loan and Advance Management The Case in Some Selected Private Banks of Ethiopia. St. Mary's University.

    Fernandes, C., Farinha, J., Martins, F. V., & Mateus, C. (2017). Supervisory boards, financial crisis and bank performance: do board characteristics matter? Journal of banking regulation, 18, 310-337.

    Gaganis, C., Galariotis, E., Pasiouras, F., & Staikouras, C. (2021). Macroprudential regulations and bank profit efficiency: International evidence. Journal of Regulatory Economics, 59, 136-160.

    Gavalas, D., & Syriopoulos, T. (2014). Basel III and its effects on banking performance: Investigating lending rates and loan quantity. Journal of Finance and Bank Management, 2(3), 17-52.

    Goldsmith-Pinkham, P. S., Hirtle, B., & Lucca, D. O. (2016). Parsing the content of bank supervision.

    Gual, J. (2013). Banking Union: made of concrete or straw? : " La Caixa", Research Department.

    Haque, F., & Brown, K. (2017). Bank ownership, regulation and efficiency: Perspectives from the Middle East and North Africa (MENA) Region. International Review of Economics & Finance, 47, 273-293.

    Hirtle, B., Kovner, A., & Plosser, M. (2020). The impact of supervision on bank performance. The Journal of Finance, 75(5), 2765-2808.

    Jones, E., & Matthijs, M. (2019). Rethinking central-bank independence. J. Democracy, 30, 127.

    Kiser, E. K., Prager, R. A., & Scott, J. R. (2016). Supervisory ratings and bank lending to small businesses during the financial crisis and great recession. Journal of Financial Services Research, 50, 163-186.

    Klomp, J., & De Haan, J. (2009). Central bank independence and financial instability. Journal of Financial Stability, 5(4), 321-338.

    Klomp, J., & De Haan, J. (2015). Bank regulation and financial fragility in developing countries: Does bank structure matter? Review of development finance, 5(2), 82-90.

    Lee, M., & Hwang, I. T. (2019). The effect of the compensation system on earnings management and sustainability: Evidence from Korea banks. Sustainability, 11(11), 3165.

    Lekwauwa, N., & Bans-Akutey, A. (2022). Commercial banks’ profitability and portfolio management in Ghana. Annals of Management and Organization Research, 3(4), 245-257.

    Liberti, J. M., & Petersen, M. A. (2019). Information: Hard and soft. Review of Corporate Finance Studies, 8(1), 1-41.

    Masciandaro, D. (2018). Central Bank digital cash and cryptocurrencies: insights from a new Baumol–Friedman demand for money. Australian Economic Review, 51(4), 540-550.

    Masciandaro, D., & Quintyn, M. (2016). The governance of financial supervision: recent developments. Journal of Economic Surveys, 30(5), 982-1006.

    Muhammad, T., Dauda, S. A., & Mamman, D. (2018). The contemporary Islamic banking system (Jaiz bank) in tackling financial exclusion in Nigeria. International journal of Islamic economics and finance studies, 4(1), 24-40.

    Nwosu, K. C., Okafor, E. G., & Egbunike, C. F. (2022). Monetary policies and economic management: Evidence from Sub-Saharan Africa. Studies in Economy and Public Policy, 1(1), 15-26.

    Nyarku, K. M., & Oduro, S. (2018). Effect of legal and regulatory framework on SMEs growth in the Accra Metropolis of Ghana. The International Journal of Entrepreneurship and Innovation, 19(3), 207-217.

    Obuobi, B., Nketiah, E., Awuah, F., & Amadi, A. G. (2019). Recapitalization of banks: Analysis of the Ghana banking industry. Open Journal of Business and Management, 8(01), 78.

    Özker, A. N. (2020). The Effects of Economic and Financial Updates in EU and The Structural Modifies in The Last Period. International journal of multidisciplinarity in business and science, 6(10), 23.

    Pacces, A. M., & Heremans, D. (2012). Regulation of banking and financial markets. Encyclopedia of Law and Economics: Regulation and Economics, 2nd Edition, AM Pacces and RJ Van den Bergh, eds., Elgar.

    Pasiouras, F., Tanna, S., & Zopounidis, C. (2009). The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence. International Review of Financial Analysis, 18(5), 294-302.

    Phan, D. H. B., Tran, V. T., & Iyke, B. N. (2022). Geopolitical risk and bank stability. Finance Research Letters, 46, 102453.

    Phina, O. N., Ogechukwuand, N. N., & Shallom, A. A. (2021). Organizational climate and employee engagement: A commercial bank perspective in Southeast Nigeria. Annals of Management and Organization Research, 2(3), 161-173.

    Plato-Shinar, R. (2021). Banking Regulation in Israel: Balancing Systemic Stability and Consumer Protection. Regulation in Israel: Values, Effectiveness, Methods, 27-48.

    Quartey, P., Turkson, E., Abor, J. Y., & Iddrisu, A. M. (2017). Financing the growth of SMEs in Africa: What are the contraints to SME financing within ECOWAS? Review of development finance, 7(1), 18-28.

    Rahmawati, Y., & Hadian, H. N. (2022). The influence of debt equity ratio (DER), earning per share (EPS), and price earning ratio (PER) on stock price. International Journal of Financial, Accounting, and Management, 3(4), 289-300.

    Rana, T., Wickramasinghe, D., & Bracci, E. (2019). New development: Integrating risk management in management control systems—lessons for public sector managers. Public Money & Management, 39(2), 148-151.

    Rezende, M., & Wu, J. (2014). The effects of supervision on bank performance: Evidence from discontinuous examination frequencies. Paper presented at the Midwest Finance Association 2013 Annual Meeting Paper.

    Wang, Z., Zhao, H., & Li, L. (2022). The positive side of bank wealth management products: Evidence from bank lending rate. Journal of Financial Stability, 58, 100950.

    WDR. (2016). World development report 2016: Digital dividends. Retrieved from https://www.worldbank.org/en/publication/wdr2016

    Weber, C. S. (2019). The effect of central bank transparency on exchange rate volatility. Journal of international money and finance, 95, 165-181.

    Yang, Z., Gan, C., & Li, Z. (2019). Role of bank regulation on bank performance: Evidence from Asia-Pacific commercial banks. Journal of Risk and Financial Management, 12(3), 131.

  1. Abdallah, M. I. (2015). Financial sector regulatory and supervisory framework in Ghana. International Journal of Economics, Commerce and Management, 3(5), 1043-1055.
  2. Abdullah, A. (2017). A comparison between Malaysia and Indonesia in Islamic banking industry. Research Journal of Business and Management, 4(3), 276-286.
  3. Abidin, Z., Prabantarikso, R. M., Wardhani, R. A., & Endri, E. (2021). Analysis of bank efficiency between conventional banks and regional development banks in Indonesia. The Journal of Asian Finance, Economics and Business, 8(1), 741-750.
  4. Agarwal, S., Lucca, D., Seru, A., & Trebbi, F. (2014). Inconsistent regulators: Evidence from banking. The quarterly journal of economics, 129(2), 889-938.
  5. Alain Gilles, F. T., Grace, A. E., Hans Patrick, B. M., Arlette, K. T., & Léopold, D. W. (2020). Explanatory Factors for the Manipulation of Accounting Records in Cameroon: The Role of the Financial Situation and the Characteristics of the Enterprise. Journal of Accounting, Finance & Management Strategy, 15(2).
  6. Alam, A. H. M. N. (2017). The Role of Regulation on Bank Competition and Stability in Asean-5 Countries. University of Malaya (Malaysia).
  7. Almaw, S. (2020). The Effect of Bank regulation on The Banks’ performance: A literature review approach. GSJ, 8(7).
  8. Anarfo, E. B., & Abor, J. Y. (2020). Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role? Research in International Business and Finance, 51, 101070.
  9. Arif, N. M., Nasir, A., Rodrigo, R. S., Bujang, I., & Supar, S. J. (2023). The profit efficiency analysis of malaysian commercial banks: A Data Envelopment Analysis (DEA). Annals of Management and Organization Research, 4(3), 211-224.
  10. Balasubramnian, B., & Palvia, A. (2018). Can short sellers inform bank supervision? Journal of Financial Services Research, 53, 69-98.
  11. Banerjee, R. N., & Mio, H. (2018). The impact of liquidity regulation on banks. Journal of Financial Intermediation, 35, 30-44.
  12. Bans-Akutey, A. (2023). Effect of Technological Development on Organisational Excellence for Selected Telecommunication Companies in Ghana: The Mediating Role of E-Leadership.
  13. Barth, J. R. (2019). Regulatory responses by countries to banking/financial crises (Vol. 13, pp. 1): MDPI.
  14. Barth, J. R., Lin, C., Ma, Y., Seade, J., & Song, F. M. (2013). Do bank regulation, supervision and monitoring enhance or impede bank efficiency? Journal of banking & finance, 37(8), 2879-2892.
  15. Beck, T., Da-Rocha-Lopes, S., & Silva, A. F. (2021). Sharing the pain? Credit supply and real effects of bank bail-ins. The review of financial studies, 34(4), 1747-1788.
  16. Beck, T., Demirgüç-Kunt, A., & Pería, M. S. M. (2011). Bank financing for SMEs: Evidence across countries and bank ownership types. Journal of Financial Services Research, 39, 35-54.
  17. Begenau, J., & Landvoigt, T. (2022). Financial regulation in a quantitative model of the modern banking system. The Review of Economic Studies, 89(4), 1748-1784.
  18. Boateng, E., & Oduro, F. (2018). Predicting microfinance credit default: a study of Nsoatreman rural bank, Ghana. Journal of Advances in Mathematics and Computer Science, 26(1), 1-9.
  19. Calice, P., Leonida, L., & Muzzupappa, E. (2021). Concentration-stability vs concentration-fragility. New cross-country evidence. Journal of international financial markets, institutions and money, 74, 101411.
  20. Choi, D. B., Holcomb, M. R., & Morgan, D. P. (2020). Bank Leverage Limits and Regulatory Arbitrage: Old Question?New Evidence. Journal of Money, Credit and Banking, 52(S1), 241-266.
  21. Chortareas, G., Magkonis, G., Moschos, D., & Panagiotidis, T. (2015). Financial development and economic activity in advanced and developing open economies: Evidence from panel cointegration. Review of Development Economics, 19(1), 163-177.
  22. Chortareas, G. E., Girardone, C., & Ventouri, A. (2012). Bank supervision, regulation, and efficiency: Evidence from the European Union. Journal of Financial Stability, 8(4), 292-302.
  23. Deli, Y. D., & Hasan, I. (2017). Real effects of bank capital regulations: Global evidence. Journal of banking & finance, 82, 217-228.
  24. Djankov, S., Georgieva, D., & Ramalho, R. (2018). Business regulations and poverty. Economics Letters, 165, 82-87.
  25. Eden, R. O. P. (2015). Effect of agency banking services on customer satisfaction: A case of Kenya Commercial Bank agent system in Ongata Rongai, Kenya.
  26. Eisenbach, T., Lucca, D., & Townsend, R. (2016). The economics of bank supervision (No. w22201): National Bureau of Economic Research. https://doi. org/10.3386/w22201.
  27. Endri, E., & Marlina, A. (2020). Impact of internal and external factors on the net interest margin of banks in Indonesia. Banks and Bank Systems, 15(4), 99-107.
  28. Eskinder, B. (2016). Assessment on Loan and Advance Management The Case in Some Selected Private Banks of Ethiopia. St. Mary's University.
  29. Fernandes, C., Farinha, J., Martins, F. V., & Mateus, C. (2017). Supervisory boards, financial crisis and bank performance: do board characteristics matter? Journal of banking regulation, 18, 310-337.
  30. Gaganis, C., Galariotis, E., Pasiouras, F., & Staikouras, C. (2021). Macroprudential regulations and bank profit efficiency: International evidence. Journal of Regulatory Economics, 59, 136-160.
  31. Gavalas, D., & Syriopoulos, T. (2014). Basel III and its effects on banking performance: Investigating lending rates and loan quantity. Journal of Finance and Bank Management, 2(3), 17-52.
  32. Goldsmith-Pinkham, P. S., Hirtle, B., & Lucca, D. O. (2016). Parsing the content of bank supervision.
  33. Gual, J. (2013). Banking Union: made of concrete or straw? : " La Caixa", Research Department.
  34. Haque, F., & Brown, K. (2017). Bank ownership, regulation and efficiency: Perspectives from the Middle East and North Africa (MENA) Region. International Review of Economics & Finance, 47, 273-293.
  35. Hirtle, B., Kovner, A., & Plosser, M. (2020). The impact of supervision on bank performance. The Journal of Finance, 75(5), 2765-2808.
  36. Jones, E., & Matthijs, M. (2019). Rethinking central-bank independence. J. Democracy, 30, 127.
  37. Kiser, E. K., Prager, R. A., & Scott, J. R. (2016). Supervisory ratings and bank lending to small businesses during the financial crisis and great recession. Journal of Financial Services Research, 50, 163-186.
  38. Klomp, J., & De Haan, J. (2009). Central bank independence and financial instability. Journal of Financial Stability, 5(4), 321-338.
  39. Klomp, J., & De Haan, J. (2015). Bank regulation and financial fragility in developing countries: Does bank structure matter? Review of development finance, 5(2), 82-90.
  40. Lee, M., & Hwang, I. T. (2019). The effect of the compensation system on earnings management and sustainability: Evidence from Korea banks. Sustainability, 11(11), 3165.
  41. Lekwauwa, N., & Bans-Akutey, A. (2022). Commercial banks’ profitability and portfolio management in Ghana. Annals of Management and Organization Research, 3(4), 245-257.
  42. Liberti, J. M., & Petersen, M. A. (2019). Information: Hard and soft. Review of Corporate Finance Studies, 8(1), 1-41.
  43. Masciandaro, D. (2018). Central Bank digital cash and cryptocurrencies: insights from a new Baumol–Friedman demand for money. Australian Economic Review, 51(4), 540-550.
  44. Masciandaro, D., & Quintyn, M. (2016). The governance of financial supervision: recent developments. Journal of Economic Surveys, 30(5), 982-1006.
  45. Muhammad, T., Dauda, S. A., & Mamman, D. (2018). The contemporary Islamic banking system (Jaiz bank) in tackling financial exclusion in Nigeria. International journal of Islamic economics and finance studies, 4(1), 24-40.
  46. Nwosu, K. C., Okafor, E. G., & Egbunike, C. F. (2022). Monetary policies and economic management: Evidence from Sub-Saharan Africa. Studies in Economy and Public Policy, 1(1), 15-26.
  47. Nyarku, K. M., & Oduro, S. (2018). Effect of legal and regulatory framework on SMEs growth in the Accra Metropolis of Ghana. The International Journal of Entrepreneurship and Innovation, 19(3), 207-217.
  48. Obuobi, B., Nketiah, E., Awuah, F., & Amadi, A. G. (2019). Recapitalization of banks: Analysis of the Ghana banking industry. Open Journal of Business and Management, 8(01), 78.
  49. Özker, A. N. (2020). The Effects of Economic and Financial Updates in EU and The Structural Modifies in The Last Period. International journal of multidisciplinarity in business and science, 6(10), 23.
  50. Pacces, A. M., & Heremans, D. (2012). Regulation of banking and financial markets. Encyclopedia of Law and Economics: Regulation and Economics, 2nd Edition, AM Pacces and RJ Van den Bergh, eds., Elgar.
  51. Pasiouras, F., Tanna, S., & Zopounidis, C. (2009). The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence. International Review of Financial Analysis, 18(5), 294-302.
  52. Phan, D. H. B., Tran, V. T., & Iyke, B. N. (2022). Geopolitical risk and bank stability. Finance Research Letters, 46, 102453.
  53. Phina, O. N., Ogechukwuand, N. N., & Shallom, A. A. (2021). Organizational climate and employee engagement: A commercial bank perspective in Southeast Nigeria. Annals of Management and Organization Research, 2(3), 161-173.
  54. Plato-Shinar, R. (2021). Banking Regulation in Israel: Balancing Systemic Stability and Consumer Protection. Regulation in Israel: Values, Effectiveness, Methods, 27-48.
  55. Quartey, P., Turkson, E., Abor, J. Y., & Iddrisu, A. M. (2017). Financing the growth of SMEs in Africa: What are the contraints to SME financing within ECOWAS? Review of development finance, 7(1), 18-28.
  56. Rahmawati, Y., & Hadian, H. N. (2022). The influence of debt equity ratio (DER), earning per share (EPS), and price earning ratio (PER) on stock price. International Journal of Financial, Accounting, and Management, 3(4), 289-300.
  57. Rana, T., Wickramasinghe, D., & Bracci, E. (2019). New development: Integrating risk management in management control systems—lessons for public sector managers. Public Money & Management, 39(2), 148-151.
  58. Rezende, M., & Wu, J. (2014). The effects of supervision on bank performance: Evidence from discontinuous examination frequencies. Paper presented at the Midwest Finance Association 2013 Annual Meeting Paper.
  59. Wang, Z., Zhao, H., & Li, L. (2022). The positive side of bank wealth management products: Evidence from bank lending rate. Journal of Financial Stability, 58, 100950.
  60. WDR. (2016). World development report 2016: Digital dividends. Retrieved from https://www.worldbank.org/en/publication/wdr2016
  61. Weber, C. S. (2019). The effect of central bank transparency on exchange rate volatility. Journal of international money and finance, 95, 165-181.
  62. Yang, Z., Gan, C., & Li, Z. (2019). Role of bank regulation on bank performance: Evidence from Asia-Pacific commercial banks. Journal of Risk and Financial Management, 12(3), 131.