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Commercial Banks’ Investment In Loans And Treasury Bills And Their Overall Profitability In Uganda
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ABSTRACT
Investigating the determinants of profitability of commercial banks has been one of the more popular topics among researchers in banking studies. Hence, to contribute to the existing knowledge, this study sought to analyze the extent to which investment in loans and treasury bills influence the overall profitability of commercial banks in Uganda, using a data set comprising 95 observations for 15 commercial banks over the period 1998-2005. The study used a longitudinal research design, based on quantitative data generated through document analysis of commercial banks’ monthly reports and returns to Bank of Uganda. Overall Profitability was measured using two profitability ratios namely: Return on Assets (ROA) and Return on Equity (ROE) while the independent variables included: volume of loans, volume of TBs, lending rates and yield on TBs. The study found Volume of Loans and TBs having a positive correlation while Lending Rates and average yields on TBs revealed negative correlation with ROA as an element of the dependent variable. With regard to ROE, Loan Volume, Lending rates and Volume of TBs showed a positive relationship while average yields on TBs indicated a negative correlation with this element of the dependent variable. However, in the two analyses, commercial banks’ investment volume in loans was found to be the only variable that had a statistically significant influence in accounting for profitability of commercial banks in Uganda. On the basis of the findings, it was recommended that commercial Banks in Uganda should aim at committing themselves to the implementation of strategies that would enhance credit creation and disbursement while ensuring adequate recovery mechanisms. It was also proposed that additional efforts should be put in educating the clientele about the banks’ loan products and prudent borrowing practices.
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CHAPTER ONE - [ Total Page(s): 4 ]Thus, the conventional wisdom in the Ugandan banking industry is that investment in TBs is an alternative source of risk free income. TBs are a short-term monetary policy instrument used by BOU to control liquidity in the economy. However, it is also a risk free asset for investors, attracting commercial banks to use it as an alternate investment to loans. As at December 2003, the volume of commercial banks investment in TBs stood at ... Continue reading---
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CHAPTER ONE - [ Total Page(s): 4 ]Thus, the conventional wisdom in the Ugandan banking industry is that investment in TBs is an alternative source of risk free income. TBs are a short-term monetary policy instrument used by BOU to control liquidity in the economy. However, it is also a risk free asset for investors, attracting commercial banks to use it as an alternate investment to loans. As at December 2003, the volume of commercial banks investment in TBs stood at ... Continue reading---
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ABSRACT -- [Total Page(s) 1]
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