The role of return on assets (ROA) in bank profitability: A case study of Ghana Commercial Bank

In an era where the banking sectorplays a critical role in economic growth, particularly in emerging economieslike Ghana, understanding the factors influencing bank profitability isessential. This study investigates the impact of macroeconomic variables onbank profitability, with a specific focus on Return on Assets (ROA) as the keyperformance metric.Using Ghana Commercial Bank as acase study, the research employs a multiple regression model to examine howmacroeconomic factors such as Gross Domestic Product (GDP) growth, inflation,exchange rate, interest rate, and money supply influence ROA. The analysisutilizes secondary data spanning from 2011 to 2022 to quantify the relationshipbetween these variables and bank profitability. The regression results indicatethat GDP growth (-0.0046, p = 0.013) and exchange rate fluctuations (-0.0106, p= 0.010) have a statistically significant negative impact on ROA, whileinterest rates (0.0017, p = 0.729) and money supply (-0.0014, p = 0.499)exhibit insignificant effects. The model demonstrates strong explanatory power,with an R² of 0.89, suggesting that macroeconomic factors play a crucial rolein shaping bank profitability.The findings indicate that GDPgrowth, interest rates, inflation, and exchange rates significantly affect ROA,with each macroeconomic factor shaping the bank’s financial performance indistinct ways. These results contribute to a deeper understanding of theeconomic forces driving bank profitability in Ghana and provide evidence-basedrecommendations for improving financial sustainability in the banking sector.The study offers valuable insights for policymakers, investors, and bankexecutives, highlighting key determinants that can optimize financialperformance and economic stability.