The Relationship between Net Interest Margin and Return on Assets of Listed Banks in Ghana

The purpose of the study was to find out the trends of Net Interest Margin (NIM) and Return on Assets (ROA).  It also sought to find out the relationship between the NIM and the ROA of the listed banks in Ghana, considering the period 2005-2011. Seven out of the nine listed banks were considered for the study. The main sources of data were from the annual reports of the selected listed banks, as well as other relevant scholarly journals. Trend analysis was used to find the trend of NIM and ROA of the listed banks. Regression and correlation analyses were used to find the relationship and the strength thereof between NIM and the ROA. The dependent variable was Profitability (ROA); while the independent variable was Net Interest Margin (NIM). The study revealed that there is a strong positive correlation between the NIM and the ROA (Profitability) of the listed banks. The regression equation between NIM (X - Axis) and ROA (Y - Axis) is Y = 0.577X – 1.427. The correlation co-efficient, R2 is 0.826. This means that 82.6% of ROA is explained by the NIM. When Net Interest Margin decreases, Return on Assets (Profitability) decreases; and vice versa. Keywords: Net interest margin, return on assets, profitability, relationship, regression, correlatio

Role of Bank Specific, Macroeconomic and Risk Determinants of Banks Profitability: Empirical Evidence from Ghana's Rural Banking Industry.

This paper analyzes bank specific, macroeconomic and some risk determinants of bank profitability of Rural and Community Banks (RCBs) in Ghana. Fixed effect panel regression analysis is applied on 114 RCBs annual financial reports during the period 2005-2013. The results generally suggests that capital adequacy, asset quality, liquidity management, investment, gross domestic product growth rate, inflation, funding risk and bank resilience risk are significant determinants of RCBs profitability though with varying degrees. Whereas management efficiency, and bank size cannot be considered as positive contributors to RCBs profitability. The study also indicates that continuous profitability performance of RCBs can curtail shortfall in funding risk and enhance RCBs stability. Keywords: Bank Performance, Bank Specific Determinants, Macroeconomic Factors, Risk Factors JEL Classifications: C5, E4, G2, G2