The financial performance of rural banks in Ghana

Abstract

Purpose Rural and community banks (RCBs) provide financial services to small enterprises in rural and sub-urban areas. The purpose of this paper is to examine their financial performance through a case-specific evaluation of a small bank situated in the northern part of Ghana. Design/methodology/approach The authors employed a triangulation method comprising relative ratio analysis, bivariate and generalized method of moments (GMM) techniques for the evaluation of the audited annual financial statements of the bank covering a period of 15 years. Findings The relative ratio analysis show that the bank's financial performance has generally been above the average of the rural banking industry. The bivariate analysis indicates that although the loans portfolio is positive, it is not properly fitted. That is, some of its loan portfolio deviates from the path of expectation. The GMM analysis indicates that its financial performance is significantly influenced by liquidity management, bank capital and size which have enhanced its expansion and intermediation to rural households and microenterprises. However, an increase in the government treasury bill rate has a declining effect on the bank’s profitability. Practical implications The findings have significant policy implications for the management and supervision of RCBs. RCBs should deal with the spillover effects of the banking and MFIs’ crisis by educating and re-assuring their customers of their financial integrity. Most importantly, they differentiate their services from the other financial institutions within the space of the rural financial architecture. Originality/value Majority of research into this area has focused heavily on large commercial banks. This research adds value to the literature by re-focusing the searchlight on the financial performance of small banks.

Implications of digital economy for financial institutions in Ghana: an exploratory inquiry

“…Meanwhile, studies ex-ante and ex-post the financial market disturbance focussed on governance, risk exposure, non-compliance to regulatory requirements among others (Amuakwa- Mensah & Boakye-Adjei, 2015;Benson, 2019;Madugu, Ibrahim, & Amoah, 2020;Matey, 2019;Osman, 2019). Indeed, recent studies document evidence of the positive effects of these factors and the performance of financial institutions (Awo & Akotey, 2019;Nyarko, Yusheng, & Zhu, 2017;Osman, 2019). However, the nature of systems, technology, products, operations, and processes installed for delivering the financial service is incidentally for the firm's survival (Mwashiuya & Mbamba, 2020;Prema, 2020).…”

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“…Penelitian terdahulu yang dilakukan pada bank konvensional menunjukan bahwa terdapat beberapa faktor yang mempengaruhi profitabilitas bank yaitu bank szie dan efesiensi manajemen (Masood, Al Suwaidi and Darshini Pun Thapa, 2012). Sedangkan penelitian lain menunjukan bahwa kinerja keuangan bank secara signifikan dipengaruhi oleh pengelolaan likuiditas, permodalan dan bank szie, namun demikian kenaikan suku bunga pinjaman mengakibatkan penurunan profitabilitas bank (Sutrisno, 2018;Awo and Akotey, 2019). Adapun penelitian lain yang dilakukan pada bank Syariah menunjukan bahwa profitabilitas merespon positif terhadap peningkatan rasio modal (Duasa, Raihan Syed Mohd Zain and Tarek Al-Kayed, 2014).…”

“…Bank szie menjadi salah satu faktor yang sering diteliti untuk mengetahui faktor penentu profitabilitas bank. Beberapa penelitian sebelumnya yang dilakukan pada bank konvensional menyimpulkan bahwa bank szie memiliki pengaruh positif terhadap profitabilitas bank (Adusei, 2015;Abbas, Iqbal and Aziz, 2019;Awo and Akotey, 2019;Hirdinis, 2019). Sedangkan penelitian yang dilkaukan pada bank Syariah menunjukan bahwa bank dengan jumlah asset yang besar serta manajemen yang efisien memberikan pengaruh positif terhadap profitabilitas bank (Masood, Al Suwaidi and Darshini Pun Thapa, 2012;Ali and Puah, 2019) Selain bank szie nonperforming financing juga menjadi salah satu faktor yang sering di anggap memiliki pengaruh terhadap profitabilitas bank syariah, penelitian sebelumnya menyimpulkan bahwa nonperforming financing mempunyai pengaruh yang signifikan terhadap profitabilitas BPR Syariah (Muhaemin and Wiliasih, 2016), adapun penelitian yang dilakukan pada bank umum Syariah menunjukan bahwa nonperforming financing berprngaruh negatif dan signifikan terhadap profitabilitas (Ummah and Suprapto, 2020).…”

Fintech Implementation on the Financial Performance of Rural Credit Banks

“…Funding affects the quality of productive assets. Capital Raising, the capital provided by rural banks comes from paid-up capital, to maintain the business continuity of the people's credit banks, the paid-up capital must be able to cover the amount of expenditure and there are funds available to support the liquidity of the rural credit bank (Awo & Akotey, 2019). For this reason, the owner of a People's Credit Bank must have the ability to supply the additional fresh funds needed if in its operation it turns out that the Rural Bank is experiencing problems in its business, additional funds can actually be obtained from funds sourced from the wider community and funds sourced from other institutions besides funds.…”