Effect of Monetary Policy Rate on Profitability of Universal Banks in Ghana

Abstract

The contribution of financial institutions towards the allocation of resources and growth a country cannot be overemphasized. The maintenance of asset quality, efficiency and profitability is a vital requirement for the survival and development of universal banks. One factor that has been identified as affecting universal banks’ profitability is the monetary policy rate. The study therefore sought to determine the effect of monetary policy rate on universal banks profitability. Using annual data spanning 1984 to 2017, the study provided evidence from an autoregressive distributed lag estimation technique to show that the monetary policy rate is significant driver of universal banks’ profitability in Ghana. The study recommends that universal banks revise their lending policy depending on the situation and economic condition of the country as well as minimising their periodic loans targets by not engaging in risky loaning practices.