A correlational study of the effectiveness and the profitability of the rural banking industry to the agricultural sector for the past 20 years (1976-1995)

Date of Publication

2000

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Edralin C. Lim

Defense Panel Chair

Annegirl Berin

Defense Panel Member

Pablo L. R. Ronquillo
Geminianiano P. Noche, Jr.

Abstract/Summary

This study aims to determine whether the rural banking industry has been effective in its role as a financial intermediary to the agricultural sector and whether the rural banking industry has been profitable for the past 20 years from 1976-1995. This study will also take a look into whether there is a correlation between the effectiveness and profitability of the rural banking industry for the same time period. Correlation is used to measure the degree of relationship between the variables. A correlation coefficient of +1 indicates a perfectly positive relationship and a correlation coefficientr of -1 indicae a perfectly negative relationship. This test will be used to see whether these two variables are moving together over time. Indexation or indexing is a statistical instrument showing the level of prices, costs, production, etc. The aims is to express the amount in real terms, in order to neutralize the damage caused by inflation.

In order to achieve the objectives, the proponents have defined effectiveness as a ratio between production output in agriculture and agricultural loans granted by rural banks, where a ratio of greater than 1 is defined as effective assuming all loans granted were fully utilized for the agricultural production. Profitability is determined in terms of net profit after tax (NPAT), return on assets (ROA), and return on equity (ROE). As to the relationship between effectiveness and profitability, the following correlations were set up:

1. Loans granted by rural banks to agriculture and ROA.

2. Loans granted by rural banks to agriculture and ROE.

3. Loans granted by rural banks to agriculture and NPAT

4. Production output in agriculture and ROA.

5. Production output in agriculture and ROE.

6. Production output in agriculture and NPAT.

For the correlational tests, the proponents also take into consideration the computation of F-test and T-test, having a sample size of n=20. The t ratio is not an estimator of any population parameter. Both the numerator and denominator must be statistically independent, and the distribution of the population is normal. The findings mean that, considering the variables were both independent, such independence were normally distributed. The F-test on the other hand, is the ratio of the unbiased estimates of two population variances that is, for determining whether the variability of one population differs from that of the other population. The study only considers 0.05 or lower to be consistent with the 95% confidence interval required for business research.

This study will also be confined to the review on government's agricultural programs though the rural banks but not evaluated separately, as well as to the Bangko Sentral ng Pilipinas' regulatory and supervisory analysis in terms of the rural banks' credit services. Agriculture's economic contribution to the country's economy, in terms of gross national product (GNP) and the government intervention as to rules and regulation, concerning rural bank's lending services to the agricultural programs will also be taken into importance.

The researchers concluded that the rural banking industry has indeed been effective and profitable in its role as a financial intermediary to the agricultural sector for the past 20 years, based on the computed data. However, other variables and past situations that happened in the country, are also needed to be considered, in relation to the quantitative and qualitative data. The proponents therefore concede that more variables affect inputs and output in agricultural production that must be investigated to provide more conclusive evidence in determining the correlation between effectiveness and profitability.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU09993

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

vii, 132, [50] leaves : illustrations

Keywords

Banks and banking--Philippines; Agricultural credit--Philippines

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