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 critical determinant of a bank’s ability to attract quality borrowers and grow its loan portfolio. Fortis Microfinance Bank has strategically positioned itself by offering competitive interest rates that balance risk management with attractive pricing for customers. The bank’s approach involves regular review and adjustment of interest rates based on market conditions, cost of funds, and competitive benchmarks (Adeyemi, 2023). By maintaining competitive rates, Fortis aims to stimulate loan demand, foster customer loyalty, and ultimately drive portfolio growth. Digital tools and market analytics enable the bank to fine-tune its rate structures and respond promptly to market shifts (Ibrahim, 2024).
A competitive interest rate environment not only attracts new customers but also helps retain existing borrowers by offering favorable refinancing options. However, challenges such as market volatility, regulatory changes, and credit risk management can complicate the maintenance of competitive rates. Empirical studies indicate that while lower interest rates can drive loan growth, they must be managed carefully to avoid increasing default risks (Chinwe, 2025). This study will evaluate the impact of interest rate competitiveness on loan portfolio growth at Fortis Microfinance Bank by analyzing lending data, market trends, and risk indicators. The objective is to determine whether competitive rate strategies translate into sustainable loan growth while maintaining asset quality.
Statement of the Problem
Fortis Microfinance Bank faces the challenge of balancing competitive interest rate offerings with the need to manage credit risk effectively. While lower rates can stimulate loan demand, they may also lead to an increased risk of defaults if not aligned with borrowers’ creditworthiness (Oluwatobi, 2023). Additionally, frequent fluctuations in market interest rates and regulatory requirements pose challenges in maintaining consistent rate competitiveness. The bank’s internal assessments have highlighted that although competitive rates have attracted new borrowers, the overall growth of the loan portfolio has been hampered by rising non-performing loans and credit risk concerns. This study aims to identify the factors that limit the effectiveness of interest rate strategies on loan portfolio growth and propose measures to optimize rate competitiveness while ensuring sound risk management practices.
Objectives of the Study
– To evaluate the impact of interest rate competitiveness on loan portfolio growth.
– To identify challenges associated with maintaining competitive interest rates.
– To recommend strategies for optimizing interest rate policies and managing credit risk.
Research Questions
– How does interest rate competitiveness influence loan portfolio growth at Fortis?
– What challenges affect the sustainability of competitive rate strategies?
– What measures can optimize rate competitiveness and manage credit risk?
Research Hypotheses
– H₁: Competitive interest rate strategies are positively correlated with loan portfolio growth.
– H₂: High non-performing loan ratios negatively affect the benefits of competitive rates.
– H₃: Strategic rate adjustments and robust risk management improve portfolio performance.
Scope and Limitations of the Study
This study focuses on Fortis Microfinance Bank’s loan portfolio and interest rate policies over a defined period. Data will be obtained from lending records, risk assessments, and market reports. Limitations include market volatility and regulatory influences.
Definitions of Terms
• Interest Rate Competitiveness: The ability to offer attractive lending rates relative to market benchmarks.
• Loan Portfolio Growth: The expansion of the bank’s total outstanding loans.
• Credit Risk Management: Practices designed to minimize the likelihood of loan defaults.
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