Interest Rate Spread on Bank Profitability: The Case of Ghanaian Banks

Abstract

The banking sector in Ghana plays a dominant role in the financial sector, particularly with respect to mobilization of savings and the provision of credit. An analysis of bank interest rate spreads is therefore central to the understanding of the financial intermediation process and the macroeconomic environment in which banks operate. This paper is motivated by the fact that although Ghana's financial sector was liberalized in the early 1990s to allow for market determination of interest rates, concerns about high interest rate spreads have persisted and attracted a lot of debate in both public and policy forums. The purpose of the study is to empirically investigate the interest rate spread on banks profitability in Ghana using average annual observation data from1992-2015 to include 28 commercial banks. Ordinary least square was used to estimate the regression coefficients. The empirical results show that bank-specific factors play a significant role in the determination of interest rate spreads in the Ghana's banking sector. All the bank specific variables were found to be significant except Total Assets (TA). Among the macroeconomic variables, inflation was found to be significant whereas GDP growth rate was insignificant. The role of the global financial institutions is changing and so are the banks operating in Ghana. The banking sector should explore new paths that will enable them to take advantage of the government's policy of making the -private sector the engine of growth‖ to market their products.

Factors Affecting Commercial Bank’s Net Interest Margin: Study Case in Indonesia, Thailand, and Philippines.

“…Because, risk averse bank tend to be reluctant to engage in riskier lending activities and larger bank tend to be more confident to charge higher loan rate and low deposit rate. This result also in line with previous research by (Antwi et al, 2017) towards banking sector in Ghana, the bigger the bank size, higher interest spread.…”

“…Higher inflation will lead to uncertainty condition and induce the need of banks to raise interest rate spread in order to compensate this condition. This result supported by previous research by (Antwi et al, 2017). Bank's Net Interest Margin: Study Case in Indonesia, Thailand, and Philippines. Vina Nugroho, Kim Sung Suk…”

“…Higher spread on NIM will lead to higher default rate, no wonder higher spread has a negative significant impact toward economic growth and a sign of inefficiency (Islam & Nishiyama, 2016). High interest rate spread also reduces the incentive to invest and slows down not only industrial growth but also economic growth (Antwi, Banerjee, & Antwi, 2017). Previous research by Agapova and McNulty (2016) argued that low spreads on NIM are a good indicator that the financial system has been more efficient.…”

The Impact of Efficiency on Bank Spreads in Commercial Banks in Kenya

“…Peshev's (2015) conclusion in the case of commercial banks in Bulgaria was that the positive relationship was as a result of banks raising their lending rates and lowering deposit rates to raise profitability. In their study on interest rate spread and profitability in Ghanaian banks, Antwi et al (2017) found return on assets to have a significant positive effect on interest rate spread pointing to a profit maximizing behaviour among the banks. Banks with higher profits relative to average assets tended to have higher lending rates and lower deposit rates.…”

Digital Leadership and Dynamic Managerial Capabilities

“…Another study found five similar characteristics: (1) being creative (2) continuously looking to make a difference, (3) participating in a global vision to drive change and collaboration, (4) remaining inquisitive to learn and adapt to change, and (5) acquiring in-depth knowledge and competence (Zhu, 2015). Yet another study also found leaders are required to be not only creative and innovative but also able to collaborate to seize opportunities (Sandell, 2013;Owusu-Antwi, Banerjee, & Antwi, 2017;Ahmed, Rehan, Chhapra, & Supro, 2018). Hence, in this study, we used the following dimensions of digital leadership: creativity, in-depth knowledge, global vision and collaboration, reflectiveness, and inquisitiveness.…”