Portfolio Management and Profitability of Commercial Banks

Banks optimally invest to earn profit as they consider the associated risks with such portfolio management. Portfolio management is a medium by which the banks hold investment due from other banks, purchase Government securities and invest in subsidiaries. This paper investigates the effect of banks’ portfolio management on profitability. Five commercial banks that are listed on the Ghana Stock Exchange were randomly selected for the study. Data on the total market value of Government securities, investment in subsidiaries and due from other banks were collected from the Bank of Ghana and the Ghana Stock Exchange between 2008 and 2017. As panel study, we regress portfolio management on profitability. The findings show that holding of government securities and investing in subsidiaries have a significant positive effect on the profitability of banks in Ghana. The findings also show that non-performing loans have a significant negative effect on the profitability of the banks. Therefore, it is recommended that banks should develop a balance between holding government securities and investing in subsidiaries to improve upon its profitability. The banks should also double their efforts to reduce their non-performing loans by enhancing the skills of its officers, strengthening its due diligence procedures and intensify monitoring activities.