Paper Title
The Influence of Economic Factors on Profitability of Commercial Banks
Abstract
Bank failure is a problem in many countries, worldwide the years, 2007-2013, marked a new wave of
bank failure, this period was characterized by high unpredictability and serious consequences due to lack of the effective of
analysis of economic factors. The general objective of this study was to analyze the effect of economic factors on
profitability of commercial banks in Rwanda. The researcher used the descriptive and analytical design, the target population
in this study was 112 including four executives, 12 head of departments, 26 Managers, 70 branch managers. The sample size
of population under study was composed by three executives, nine heads of department, 20 managers of main branch and 70
branch managers, sample size was 88 respondents. In collecting secondary data, annual reports were used. Researcher used
financial reports of 2010 – 2015 for secondary data. Qualitative and quantitative techniques to get primary data for the
research was used, where questionnaire and interview were used. The Statistical Package for Social Sciences (SPSS) and
Excel were used in this study. The study revealed that capital adequacy correlate negatively to return on assets, return on
equity, net interest margin, where r = -0.655; -258 respectively -0.699. Assets quality correlate negatively to return on assets,
return on equity, net interest margin, where r = -0.598; -488 respectively -0.527. Efficiency management correlates
positively to return on assets, return on equity, net interest margin, where r = 0.12; 0.609 respectively 0.143. Liquidity
correlates positively to return on assets, negatively to return on equity, and positively to net interest margin, where r = 0.432;
0.005 respectively 0.269. Real GDP growth rate correlates negatively to return on assets, return on equity, net interest
margin, where r = -0.295; 0.598 respectively- 0.533. Average annual inflation rate correlates negatively to return on assets,
return on equity, net interest margin, where r = -0. 0000940 (this figure indicated that correlation between average annual
inflation rate and return on equity was around zero); -0. 644 respectively- 0. 669. The study recommended that commercial
banks should comply with banking rules and regulations related to economic factors to optimize the influences of external
factors to their profitability.
Key words- Banks, commercial banks, Economic, Economic factors, internal factors, external factors, profitability.