The impact of interest rate variability on deposit growth in banking: a case study of Fortis Microfinance Bank
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Background of the Study
Interest rates are a fundamental component of the banking ecosystem, influencing borrowing, lending, and deposit growth. Fortis Microfinance Bank operates in an environment where interest rate variability plays a critical role in determining deposit inflows. Fluctuations in interest rates can either stimulate or dampen deposit growth, affecting the bank’s liquidity and overall financial stability (Olawale, 2023). This study examines the relationship between interest rate variability and deposit growth, with a focus on how changes in policy rates, market conditions, and economic factors influence customer deposit behaviors.
Fortis Microfinance Bank’s strategic focus on deposit mobilization is directly impacted by interest rate movements. When interest rates rise, customers may be incentivized to deposit funds to take advantage of higher returns, whereas lower rates might lead to reduced deposit growth. The bank has implemented various measures to attract and retain deposits, such as competitive savings schemes and flexible term deposits. However, the inherent uncertainty associated with interest rate fluctuations poses significant challenges to these strategies (Ibrahim, 2024).
Moreover, interest rate variability is often influenced by broader economic conditions, including inflation rates, fiscal policies, and global economic trends. These factors create a dynamic and sometimes unpredictable environment for deposit growth. Fortis Microfinance Bank’s ability to forecast deposit trends and adjust its product offerings accordingly is crucial for maintaining a stable deposit base. Recent empirical studies suggest that a strong correlation exists between interest rate adjustments and changes in deposit levels, highlighting the importance of strategic rate management in banking (Nwachukwu, 2025).
This research seeks to investigate how variations in interest rates affect deposit growth at Fortis Microfinance Bank. By analyzing historical data, market trends, and customer behavior, the study aims to provide insights into the optimal balance between competitive interest rates and sustainable deposit mobilization. The findings are expected to inform policy decisions and strategic planning, ultimately contributing to the bank’s financial resilience and growth (Afolabi, 2023).
Statement of the Problem
Fortis Microfinance Bank faces challenges in maintaining steady deposit growth amid fluctuating interest rates. The primary issue is the uncertainty created by interest rate variability, which makes it difficult for the bank to predict customer deposit behavior. While high interest rates generally encourage deposit inflows, sudden rate cuts or volatile market conditions can lead to unpredictable withdrawal patterns, affecting the bank’s liquidity (Balogun, 2024).
Another challenge is the competitive pressure from other financial institutions that may offer more attractive interest rate packages during periods of low rate variability. This competition can lead to a loss of market share, as customers seek better returns on their deposits elsewhere. Additionally, the bank’s current deposit schemes may not be sufficiently flexible to accommodate rapid changes in interest rates, resulting in reduced customer confidence and lower deposit growth. The lack of real-time data analytics further exacerbates the problem, limiting the bank’s ability to respond swiftly to market changes (Okeke, 2023).
Moreover, external economic factors such as inflation and fiscal policy adjustments add complexity to the interest rate environment. These factors can diminish the attractiveness of deposit products, leading to a decline in customer participation. This study aims to address these issues by investigating the extent to which interest rate variability impacts deposit growth, identifying the key factors that drive customer deposit decisions, and exploring strategies that Fortis Microfinance Bank can adopt to mitigate these risks (Eze, 2024).
Objectives of the Study
• To analyze the impact of interest rate variability on deposit growth.
• To identify the key factors influencing deposit behavior in response to interest rate changes.
• To recommend strategies for stabilizing deposit inflows amid rate fluctuations.
Research Questions
• How does interest rate variability affect deposit growth at Fortis Microfinance Bank?
• What external economic factors contribute to deposit fluctuations?
• How can the bank adjust its deposit schemes to better cope with interest rate changes?
Research Hypotheses
• H₁: Interest rate variability has a significant impact on deposit growth.
• H₂: Higher interest rates positively correlate with increased deposit inflows.
• H₃: Enhanced deposit schemes can mitigate the negative effects of interest rate fluctuations.
Scope and Limitations of the Study
This study focuses on the relationship between interest rate changes and deposit growth at Fortis Microfinance Bank over the past three years. Limitations include the influence of external economic variables and the availability of detailed customer behavior data.
Definitions of Terms
• Interest Rate Variability: Fluctuations in the interest rates offered by banks.
• Deposit Growth: The increase in customer deposits over a specified period.
• Liquidity: The availability of liquid assets to meet immediate and short-term obligations.
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