Abstract:
Despite the major role played by rural and community banks in economic
development and in the financial climate, their performance over a decade now
have not been up to expectations. They continue to experience huge challenges due
to innovations in technology as well as globalization which create opportunities for
growth. The purpose of this study was to examine the impact of liquidity on rural
and community banks in the Eastern Region of Ghana selected from eleven (11)
banks for the period of ten years from 2007 – 2016. The study used panel data and
secondary data was used to collate the ratios from all the selected rural and
community banks. A regression model was developed with Return on Asset as the
dependent variable accompanied with other six explanatory variables. Findings
from the study revealed that quality of loan portfolio ratio; capital ratio and loan to
total assets had significant and positive relationship with profitability. It was also
revealed that shocks in all the liquidity variables had one or other implications on
profitability. Finally, based on finding seven, which states that cost to income has
negative and significant effect on profitability, the study recommended that
management must adopt information and communication technology to reduce cost
and easy access to banks’ product in the form of Automated Teller Machine.
