Effect of the interest rates on profitability of commercial banks in Uganda :

Abstract

The purpose of this study was, to investigate the effect of interest rates on profitability of finance trust bank, Uganda. The study was based on the following three (3) objectives; (i) to determine the effect of lending interest rates on profitability of Finance Trust Bank, Uganda; (ii) to find out the effect of saving interest rates on profitability of finance trust bank, Uganda and (iii) to assess the effect of market interest rates on profitability of the finance trust Bank, Uganda.

The findings revealed that lending interest rates negatively (β =- 0.001) and insignificantly (p- value=0.950) affected profitability of finance trust bank, Uganda; saving interest rates negatively (β = -0.002) and insignificantly (p-value=0.508) affected profitability of finance trust bank, Uganda; and market interest rates negatively (β =-0.003) and insignificantly (p-value=0.979), affected profitability of finance trust bank Uganda. The study concluded that; lending interest rates had significant effect on profitability of finance trust bank; saving interest rates had a significant effect on profitability of finance trust Bank and market interest rates had a significant effect on profitability of finance trust bank. The study recommended that; in regard to lending interest rates, government reviewed and strengthened bank lending rate policies through effective and efficient regulation and supervisory framework; In regard to saving interest rates, bank's management created the conditions for an efficient banking system devoid of information asymmetry to adapt the changing macroeconomic variables of deposit saving interest rates. Banks' management efficiently managed their deposits in order to earn savings from amounts due from other banks and all deposits. Regarded to market interest rates, Bank's management obtained bank borrowings from other banking institutions at less interest rate that increased its profitability. Regarded to the contribution of knowledge, apart from lending interest rates, saving interest rates and market interest rates, other variables included market size, macro-economic conditions and monetary policy contributed the profitability of the bank. The study developed great ideas that the management of the bank should have priorities set to meet its objectives by using some specific interest rates and not all.