The Impact of Interest Rates On the Profitability of Commercial Banks in Uganda

Table of Contents

DECLARATION .................................................................................................................................... ii

APPROVAL .......................................................................................................................................... iii

ACKNOWLEDGEMENT ...................................................................................................................... iv

ABSTRACT ........................................................................................................................................... v

LIST OF FIGURES ................................................................................................................................ ix

LIST OFT ABLES .................................................................................................................................. x

CHAPTER ONE ..................................................................................................................................... 1

INTRODUCTION ................................................................................................................................... 1

1.1 Background of the study .............................................................................................................. 1

1.2 Background of interest rate .......................................................................................................... 2

1.2.1 Decreasing Effect... .................................................................................................................. 2

1.3 . Bank Profitability ....................................................................................................................... 3

1.3.1 Commercial banks profitability ................................................................................................ 4

1.4 The relationship between interest rates and commercial banks profitability .................................. 4

1.5 Contextual Background ................................................................................................................ 5

1.6 Value of the Study ....................................................................................................................... 7

I. 7 Problem statement: ...................................................................................................................... 7

1.8 Research Questions: ..................................................................................................................... 8

1.9 Research objectives ...................................................................................................................... 8

CHAPTER TWO .................................................................................................................................... 9

LITERATURE REVIEW ........................................................................................................................ 9

2.1 Introduction ................................................................................................................................. 9

2.2 Theoretical Review ...................................................................................................................... 9

2.2.1 Schumpeter Economic Cycle Theory ........................................................................................ 9

2.2.2 Keynes's Liquidity Preference Theory ................................................................................... 11

2.2.3 Macroeconomic TI1eory ......................................................................................................... 12

2.3 Detenninants of commercial Banks Profitability ........................................................................ 12

vi I Page

2.3.1 Interest Rates ......................................................................................................................... 13

2.3.2 Deposits ................................................................................................................................. 13

2.3.3 Bank Size ............................................................................................................................... 13

2.4 Empirical Literature ................................................................................................................... 14

2.4.1 International Empirical Literature ........................................................................................... 14

2.5 Summary ................................................................................................................................... 16

CHAPTER THREE ............................................................................................................................... 17

METHODOLOGY ................................................................................................................................ 17

3.1 Introduction ............................................................................................................................... 17

3.2 Research Design ........................................................................................................................ 17

3.3 Population of the Study .............................................................................................................. 18

3.4 Sample and Sampling Techniques .............................................................................................. 18

3.5 Data collection Sources used in this Research ............................................................................ 18

3.6 Data analysis .............................................................................................................................. 19

3.6.l Conceptual Model .................................................................................................................. 20

3.6.2 Analytical Model ................................................................................................................... 20

3.6.3 Validity and reliability of Data ............................................................................................... 20

3.6.4 Person correlation method ...................................................................................................... 21

3.6.5 Test of significance ................................................................................................................ 21

3.6.6 Data collection and Statistical Analysis .................................................................................. 21

3.6.7 SAMPLE OF A QUESTIONNAIRE TO BE USED IN DATA COLLECTION ...................... 22

CHAPTER FOUR ................................................................................................................................. 28

DATA ANALYSIS AND PRESENTATION ........................................................................................ 28

4.1 Introduction ............................................................................................................................... 28

4.2 Summary of Statistics ................................................................................................................ 28

4.2.1 Profitability of Bank of Baroda .............................................................................................. 36

4.3 Discussion ................................................................................................................................. 41

4.4 Sununary ................................................................................................................................... 42

viilPage

CHAPTER FIVE ................................................................................................................................... 44

SUMMARY, CONCLUSION AND RECOMMENDATIONS ............................................................... 44

5.0 Introduction ............................................................................................................................... 44

5.1 Sunnnary of the Study ................................................................................................................ 44

5.2 Conclusion ................................................................................................................................. 45

5.3 Limitations of the Study ............................................................................................................. 45

5.4 Policy Recommendation ............................................................................................................ 46

5.5 Suggestions for Further Research ............................................................................................... 46

REFERENCES ..................................................................................................................................... 48

APPENDICES ...................................................................................................................................... 50

APPENDIX I: INTRODUCTION LETTER .......................................................................................... 50

APPENDIX II: QUESTIONNAIRE ...................................................................................................... 51

ABSTRACT

The core objective of this project is to analyze the impact of interest rates changes on the profitability of commercial banks being operated in Uganda by examining the financial statements of the banks and to suggest solutions thereof. Recent movements in interest rates, inflation and exchange rates present real dangers to economic stability commercial banks in Uganda continue to report increase in profits due to the increase in the interest rates. The study done is descriptive in nature and it is based on secondary reliable data obtained from commercial banks websites, annual financial reports, and personal interactions with banks officials such as Uganda commercial bank Uganda branch. Since the efficiency of banking sector is considered most important for economic growth, monetary policy implementation and macro-economic stability. From the past few years, interest rates spread of banking sector of Uganda implying that the higher the interest rates, the better the performance of commercial banks. The study also found that the model containing interest rates and size of commercial bank can explain 64% of the changes in commercial banks profitability. The study recommended that policies to be put in place to shield bank lending rates and ensure monitoring the same. Futher, so as to cushion consumers from exploitation by commercial banks, the Central Bank need exercise their monitoring roles strictly and discipline any commercial banks that may be increasing the interest rates arbitrary to boost their profitability. The study also recommends that in times of poor performance of commercial banks and the need to boost their profitability may be necessary for their role in economy, Central Bank of Uganda should come up with monetary policy that will lead to rise in interest rates and hence improving banks profitability.

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APA

ALEXANDER, K (2022). The Impact of Interest Rates On the Profitability of Commercial Banks in Uganda. Afribary. Retrieved from https://afribary.com/works/the-impact-of-interest-rates-on-the-profitability-of-commercial-banks-in-uganda

MLA 8th

ALEXANDER, KA "The Impact of Interest Rates On the Profitability of Commercial Banks in Uganda" Afribary. Afribary, 18 Jul. 2022, https://afribary.com/works/the-impact-of-interest-rates-on-the-profitability-of-commercial-banks-in-uganda. Accessed 22 Jul. 2024.

MLA7

ALEXANDER, KA . "The Impact of Interest Rates On the Profitability of Commercial Banks in Uganda". Afribary, Afribary, 18 Jul. 2022. Web. 22 Jul. 2024. < https://afribary.com/works/the-impact-of-interest-rates-on-the-profitability-of-commercial-banks-in-uganda >.

Chicago

ALEXANDER, KA . "The Impact of Interest Rates On the Profitability of Commercial Banks in Uganda" Afribary (2022). Accessed July 22, 2024. https://afribary.com/works/the-impact-of-interest-rates-on-the-profitability-of-commercial-banks-in-uganda