Bank profitability: Insights from the rural banking industry in Ghana

Abstract

This paper analyzes the profitability of 112 rural banks (special unit banks created to promote rural financial intermediation in Ghana). The results generally show that bank size, funding risk, diversification, liquidity risk, and bank stability are significant predictors of rural bank profitability. Whereas an improvement in the funding risk of a rural bank in a particular period portends a drop in its profitability in the future, an improvement in the size, diversification, liquidity risk, and stability of a rural bank signifies an improvement in the future profitability of the bank.

Keywords:

• bank profitability
• rural bank
• Ghana

Public Interest Statement

This paper analyzes the profitability of 112 rural banks in Ghana. The study has become necessary because, over the years, attention on bank profitability has been on commercial banks. Thus, knowledge about what accounts for the profitability of special banks like rural banks is sparse and inchoate. The study shows that size, funding risk, liquidity risk, diversification, and stability significantly influence the profitability of rural banks in Ghana.

Notes

1. In this paper rural banks and RCBs are used interchangeably.

Additional information

Funding

Funding. The author received no direct funding for this research.

Notes on contributors

Michael Adusei

Michael Adusei is a faculty member in the service of Kwame Nkrumah University of Science and Technology, Ghana. His specialization is banking and finance. His research interests include financial intermediation and corporate governance. He has published in international peer-reviewed journals, including Journal of International Development; The International Journal of Business and Finance Research; and Journal of Economics and International Finance.