Determinants of Rural Banks Profitability in Ghana: a Case Study of Rural Banks in Upper East Region

Abstract

According to the findings of this study, the profitability of Ghanaian rural banks in Ghana is being investigated. The rural bank's return on assets (ROA) and return on equity (ROE) are two of the most significant measures of profitability (ROE). Analysis includes an extra set of independent factors, including the size and quality of the bank's branch network, as well as the bank's capital adequacy and liquidity. Five years of panel data from five rural banks in Ghana's Upper East area are used to explore fixed and random effect models for fixed effect models. The Ghanaian Central Bank provides the statistics. Among the macroeconomic variables considered in this research are GDP, inflation and interest rates, as well as the currency rate. The profitability of the five banks studied (2014 to 2018) changes during this time, according to the report. As measured by ROAs, Ghanaian rural banks' capital adequacy ratio and operational efficiency have the greatest impact on their profitability, according to the study's findings (ROA). There is no correlation between rural bank profitability (ROA and ROE) as measured by macroeconomic factors (interest rate, inflation rate, exchange rate, GDP growth rate) and rural bank profitability (ROA and ROE). A growing economy, according to the findings of the research, will lead to increased profits for banks, which will in turn benefit the government.