An appraisal of interest rate competitiveness on loan portfolio growth in banking: a case study of Fortis Microfinance Bank
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Background of the Study
Interest rate competitiveness is a crucial determinant of loan portfolio growth in the banking sector. Fortis Microfinance Bank has focused on offering competitive interest rates as part of its strategy to expand its loan portfolio and attract a diverse range of borrowers. Between 2023 and 2025, the bank has implemented dynamic pricing models and risk-based rate adjustments to ensure its lending rates remain attractive while managing credit risk effectively (Adeniyi, 2023; Okeke, 2024).
A competitive interest rate strategy enables the bank to stimulate loan demand, particularly among price-sensitive segments such as micro and small enterprises. By benchmarking its rates against industry standards and continuously monitoring market trends, Fortis Microfinance Bank aims to balance profitability with market share expansion. However, external economic factors such as inflation and global market volatility, as well as internal challenges in data integration and risk assessment, can affect the bank’s ability to maintain optimal rate competitiveness. These challenges may lead to suboptimal rate adjustments, which in turn could result in reduced loan demand or increased default rates.
The bank’s investment in advanced analytics allows it to refine its interest rate strategy continuously, yet discrepancies in rate setting and execution have been noted in some cases. This study seeks to appraise the effect of interest rate competitiveness on loan portfolio growth at Fortis Microfinance Bank by analyzing key performance metrics, customer acquisition data, and loan performance indicators (Ibrahim, 2025). The findings will help determine the efficacy of current strategies and identify opportunities for further optimization to support sustainable portfolio expansion.
Statement of the Problem :
Despite efforts to offer competitive interest rates, Fortis Microfinance Bank struggles to achieve consistent loan portfolio growth. While attractive rates have increased loan applications among certain segments, external economic pressures and internal inefficiencies have led to high default rates and suboptimal loan performance (Okeke, 2024). Inaccurate risk assessments and delays in rate adjustments contribute to a mismatch between offered rates and market conditions, reducing the overall effectiveness of the bank’s pricing strategies. This misalignment not only limits loan portfolio expansion but also affects the bank’s profitability and risk exposure.
Moreover, variability in borrower sensitivity to interest rates across different segments poses a challenge for maintaining uniform competitiveness. The bank’s dynamic pricing models may not fully capture the nuances of market behavior, resulting in rate offerings that are either too high to attract quality borrowers or too low to cover associated risks. Without a robust framework for continuous monitoring and rapid adjustment, Fortis Microfinance Bank risks losing its competitive edge. This study aims to investigate these issues by examining the relationship between interest rate competitiveness and loan portfolio growth, thereby identifying key areas for improvement in rate setting and risk management.
Objectives of the Study:
To assess the impact of interest rate competitiveness on loan portfolio growth at Fortis Microfinance Bank.
To identify challenges in dynamic pricing and risk assessment.
To recommend strategies for optimizing interest rate adjustments.
Research Questions:
How does interest rate competitiveness influence loan portfolio growth?
What challenges affect the implementation of dynamic pricing models?
What improvements can enhance loan portfolio quality?
Research Hypotheses:
H1: Competitive interest rates significantly boost loan portfolio growth.
H2: Inaccurate risk assessments negatively affect rate effectiveness.
H3: Enhanced dynamic pricing improves loan performance.
Scope and Limitations of the Study:
This study examines Fortis Microfinance Bank’s interest rate strategies from 2023 to 2025. Limitations include external economic influences and data quality issues.
Definitions of Terms:
Interest Rate Competitiveness: The attractiveness of lending rates relative to market standards.
Loan Portfolio Growth: The expansion in the volume and quality of loans.
Dynamic Pricing Models: Systems that adjust interest rates in real time based on market data.
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