Optimum Loan Portfolio Selection: A Case Study of Juaben Rural Bank, Ashanti Region

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Date
2011
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Abstract
Banks receive money on current or deposit account, pay and collect cheques drawn by or paid by customers, making of advances to customers. A bank can generate revenue in a different ways including interest, transaction of fees and financial advice. The main method is through charging interest on the capital it lends out to customers. The objectives of the study were; (i) to come out with a quantitative model that will maximize the returns on loans (ii) to determine optimum loan portfolio for Juaben rural bank. Both primary and secondary data were gathered from Juaben Rural Bank. The data included; type of loans, the interest rate and the probability of bad debt associated with each type of loan. The data was then modelled as a linear programming problem. The Quantitative Manager for Windows software was used to solve the problem. It was observed that out of six million, five hundred thousand Ghana cedis (GH¢6,500,000.00) to be disbursed as loan in 2012 financial year, one million, one hundred and ten thousand, four hundred and sixteen Ghana cedis (GH¢1,110,416.00) and seven hundred and four thousand, one hundred and sixty-six Ghana cedis (GH¢704,166.00) should be given to agriculture and transport sectors respectively. The trading sector should be given one million, four hundred and eighty- nine thousand, five hundred and eighty four Ghana cedis (GH¢1,489,584.00), The cottage industry, one million, four hundred and thirty five thousand, four hundred and seventeen Ghana ceids (GH¢1,435,417.00) and salary loans one million, seven hundred and sixty thousand, four hundred and seventeen Ghana cedis (GH¢1,760,417.00). With these allocation the bank will make a maximum profit of one million, eight hundred and fifty- two thousand, four thundered eighty- five Ghana cedis eighty nine pesewas (GH ¢1,852,485.89).
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A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology, Kumasi in partial fulfillment of the requirements of the degree of Commonwealth Executive Masters in Business Administration,
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