The Effect of Interest Rate Changes on Commercial Banks’ Profitability in Nigeria: A Case Study of Guaranty Trust Bank
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Background of the Study
Interest rates play a crucial role in the financial performance of commercial banks, influencing their cost of funds, loan pricing, and investment returns. In Nigeria, interest rate fluctuations are common due to economic volatility and monetary policy adjustments by the Central Bank of Nigeria (CBN) (Obiora & Adeyemi, 2024).
Guaranty Trust Bank (GTBank) is one of Nigeria's leading financial institutions, renowned for its robust profitability and efficient operations. However, changes in interest rates pose challenges to maintaining consistent profit margins, requiring banks to develop strategies to mitigate adverse effects (Chukwuemeka, 2023).
Statement of the Problem
Interest rate volatility significantly impacts Nigerian commercial banks, affecting loan demand, repayment rates, and investment income. GTBank faces the challenge of balancing profitability with customer affordability, particularly during periods of high-interest rates (Adebayo, 2023).
This study investigates the effect of interest rate changes on GTBank’s profitability and identifies measures to optimize financial performance amidst fluctuating rates.
Objectives of the Study
- To analyze the effect of interest rate changes on GTBank’s profitability.
- To evaluate the strategies GTBank employs to manage interest rate fluctuations.
- To recommend measures for optimizing profitability in response to interest rate changes.
Research Questions
- How do interest rate changes affect GTBank’s profitability?
- What strategies does GTBank use to manage interest rate fluctuations?
- What measures can optimize profitability amidst interest rate changes?
Research Hypotheses
- Interest rate changes significantly impact GTBank’s profitability.
- GTBank employs effective strategies to manage interest rate fluctuations.
- Optimized financial strategies can enhance profitability despite interest rate volatility.
Scope and Limitations of the Study
The study focuses on GTBank’s financial performance between 2023 and 2025. Limitations include limited access to proprietary financial data and external macroeconomic influences.
Definitions of Terms
- Interest Rate Changes: Adjustments in the cost of borrowing or return on savings determined by market conditions or monetary policy.
- Profitability: The financial success of a company, measured by net income or profit margins.
- Monetary Policy: Economic strategies implemented by the central bank to control money supply and interest rates.
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