Abstract:
The study examines the effect of interest rate changes on bank
profitability, using the pooled OLS panel data of 25 banks in Ghana
between 2006 and 2015 (Bank of Ghana data scope). This population
of the study consisted of banks in Ghana listed on Ghana Stock
Exchange. The data gathered was analyzed using STATA 12.0. The
explanatory variables used were interest rate changes, interest margin,
deposit growth, Loan Loss Provision, Ownership Bank size whiles
profitability indicator, ROA, we used as the dependent variable. From
the descriptive statistics, the average profitability value suggests that
the overall profitability of banks in Ghana is relatively low. Pearson’s
correlation coefficient was used to analyzed the association among the
variables (Both dependent variables and independent variables). It was
observed that the correlations among all variables were low and there
was weal positive and negative relationship among the variables.
However, there was a strong positive correlation between interest rate
changes and interest margin from the pooled OLS panel result, Interest
rate changes and interest margin were positive and significantly (1%
level of significant) linked to return on asset (ROA). The findings
agree with those of Ongore and Okoth (2013) who found that interest
rate volatility affected the performance of organizations especially in
the financial sector in Kenya. In the regression model, the positive
relationship between interest rate and bank return on asset may reflect
how fluctuating and volatile interest rate may have contributed to the return on the asset of banks. This suggests that banks respond very fast to
changes in interest rate.
