THE RURAL BANK PROFITABILITY NEXUS: EVIDENCE FROM GHANA

Abstract

The study examined the determinants of RCB’s financial profitability. The study used mainly secondary data extracted from the annual financial statement of the selected banks. The study used a panel data with two hundred and fifty observations within the period 2002 to 2011 for sixty rural banks in Ghana. The empirical results reveal some interesting evidence on the determinants of RCB’s profitability. The findings suggest that the size of the RCB’s assets and increased non-interest income, are the internal factors that affect rural bank profitability, whiles GDP and the growth of money supply are external factors that affect rural bank profitability. Though, loan loss provisions, total overhead expenses and inflation negatively affected rural bank performance. It is recommended that it is necessary for bank management to take all the required decisions as to the proportion of their assets they will want to hold to enhance the financial positions of the bank. In addition, government must ensure economic growth stability that could transform into rural bank profitability.