Trends in Treasury Bill Investments, Loans and Advances and their interrelationships: the case of Sekyere Rural Bank Ltd.

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There has been a debate that, banks do nothing but park more of their investable funds into treasury bills during unstable economic environment. However, during stable economic environment, when all macro-indicators fall this notion is brought to question. The peculiar problem of rural banks is that, they operate in rural areas, where poverty is high making lending very risky. This study examined recent trends in T-Bill rates and its relationship with falling inflation rates. It also examined the relationship between falling T-bill rates and investment in T-Bills. Again, the study determined the trade-off between Loans and T-Bills in both stable and unstable economic environments. Sekyere Rural Bank was used as case study and compared with the rural banking industry in Ghana. Both primary and secondary data were used in the study. The data was analyzed using descriptive statistics and running the necessary correlation in Excel and SPSS. The study found out among others, T-Bill and Loans are positively related and that banks invest more in T-Bills than Loans in unstable environment. On the hand, whereas rural banks invest more in T-bills in stable periods, Sekyere Rural Bank invested more in Loans than in T-Bills in the same period. Again, irrespective of the level of the T-Bill rate banks continuously increased their investments in T-Bills. It has been suggested in this study that rural banks must have benchmarks of investing in T-Bills so as to prevent shifting all funds into T-Bills.
A thesis submitted to the KNUST School of Business in partial fulfilment of the requirements of the degree of Master of Business Administration, 2008