THE IMPACT OF INTEREST RATE ON PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA(1995-2012)

AUTHOR: UWHA, NKECHI J.F (MSc)

DEPARTMENT: Financial Management Technology

SCHOOL: School of Management Technology (SMAT)

AFFILIATION: Federal University of Technology Owerri

This research work investigates the impact of interest rates on deposit money banks profitability between 1995 and 2012. The study was necessitated by the pivotal role interest rates play in the development and growth of the economy. The study made use of secondary data in its analysis. Four explanatory variables, Minimum Rediscount Rate, Real Deposit Rate,Prime Lending Rate and Loan Deposit Rate were specified and were used to establish a relationship with the level of Banks profitability using the multiple regression tools. Banks’ profitability was proxied by Return on Assets and Return on Equity. In the specific finding of the study, only the t-values of Prime Lending Rate in model 1 and model 2 are significant. The t-values of all the other variables are not significant at 5% level. Consequently, only the alternative hypothesis of H03 was accepted in both models while the null hypotheses of all other stated hypotheses are accepted. Hence, there is significant relationship between Prime Lending Rate and Profitability of Deposit Money Banks in Nigeria. The conclusion therefore, is that prime lending rate of banks is very important in determining the profitability of banks and should not be neglected. Based on the above findings, the study recommends that Bank interest rate in the financial market must be market driven to allow for efficient process.

THE FULL CONTENT OF THIS RESOURCE IS AVAILABLE AT THE FUTO LIBRARY WEBSITE AND IS ACCESSED THROUGH THIS LINK: http://tinyurl.com/zhw279u

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