Profitability Determinants of Savings and Loans Companies in Ghana: Evidence on Bank Specific and Macroeconomic Determinants

Abstract

The paper analyzes how bank specific and macroeconomic variables affect the profitability of savings and loans (S&L) companies in Ghana. The bank specific (internal) determinants data was collected from the financial statements of the S&L companies from 2011 to 2016 whereas the macroeconomic (external) determinants were sourced from the central bank of Ghana. The bank specific variables chosen for the study were capital adequacy ratio, non-performing loan ratio, loans and advances to deposit ratio and size of bank. The macroeconomic variables included were annual GDP growth rate and CPI-inflation rate. Data were analyzed using SPSS software and multiple regression model was used to find out the relationship between profitability and the internal and external determinants. Capital Adequacy, Non-performing Loans, Bank size, Inflation and GDP growth rate all negatively influenced profitability of savings and loans companies in Ghana. The only variable found to positively influence S&Ls profitability was Loans and Advances. Researchers have made different findings with regard to profitability determinants of banks which makes the findings inconclusive. We therefore recommend further research on profitability determinants banks especially, in the Savings and Loans sub banking sector.