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 rate variability plays a crucial role in shaping depositor behavior and influencing the growth of bank deposits. Fortis Microfinance Bank operates in a dynamic economic environment where fluctuations in interest rates can significantly affect the attractiveness of deposit accounts. Banks adjust their interest rate offerings to remain competitive and to attract and retain customers; however, these adjustments can lead to unpredictability in deposit growth (Adebisi, 2023). The bank’s strategic decisions regarding interest rates are informed by macroeconomic indicators, competitive dynamics, and regulatory guidelines. Understanding the nexus between interest rate variability and deposit growth is critical for ensuring sustainable financial performance and maintaining customer confidence (Olu, 2024).
In recent years, Fortis Microfinance Bank has implemented various strategies to manage the risks associated with interest rate fluctuations. These include dynamic pricing models, targeted marketing campaigns, and enhanced communication with depositors regarding rate changes. Such initiatives are designed to mitigate the negative impacts of rate variability and to capitalize on favorable economic conditions. Empirical studies have demonstrated that when interest rates are volatile, depositors tend to be more cautious, often shifting their funds to alternative investment vehicles or seeking institutions offering more stable returns (Ijeoma, 2025). Consequently, the bank must balance competitive rate offerings with the need for financial stability and growth in deposits.
This study aims to critically assess how interest rate variability affects deposit growth at Fortis Microfinance Bank, exploring the mechanisms through which rate changes influence depositor behavior. By analyzing historical data and depositor feedback, the study seeks to offer insights into optimal interest rate strategies that can sustain deposit growth even in turbulent economic times.
Statement of the Problem
Fortis Microfinance Bank faces the challenge of managing deposit growth amid frequent fluctuations in interest rates. The inherent uncertainty associated with rate variability has led to inconsistent deposit inflows, as customers react to both anticipated and unexpected changes in yield (Babatunde, 2023). While the bank has implemented measures to stabilize its rate offerings, the unpredictable nature of the broader economic environment continues to undermine depositor confidence. In periods of rate hikes, depositors may increase their contributions, whereas rate cuts can trigger a withdrawal of funds or a shift toward alternative banking products. This cyclical behavior complicates the bank’s ability to maintain a steady deposit base and impairs long-term financial planning (Chinwe, 2024).
Moreover, the communication of interest rate policies and the rationale behind rate adjustments often lacks clarity, further exacerbating depositor uncertainty. This communication gap has been linked to reduced customer trust and slower deposit growth. The inability to effectively predict and manage depositor responses to interest rate changes creates a significant operational risk for the bank, necessitating a thorough investigation into the determinants of deposit behavior. This study, therefore, seeks to identify the extent to which interest rate variability influences deposit growth and to propose strategies that can mitigate these adverse effects, thereby ensuring a more stable deposit base (Ifeanyi, 2025).
Objectives of the Study
To evaluate the impact of interest rate variability on deposit growth at Fortis Microfinance Bank.
To identify depositor response patterns to changes in interest rates.
To recommend strategies for managing rate variability to sustain deposit growth.
Research Questions
How does interest rate variability affect deposit growth at Fortis Microfinance Bank?
What depositor behavior trends are observed in response to rate fluctuations?
Which strategies can effectively stabilize deposit inflows amid rate variability?
Research Hypotheses
Interest rate variability is negatively correlated with steady deposit growth.
Clear communication of rate policies enhances depositor confidence and stabilizes deposits.
Proactive rate management strategies lead to improved deposit growth outcomes.
Scope and Limitations of the Study
This study focuses on deposit data and interest rate policies at Fortis Microfinance Bank over the past three years. Limitations include the influence of external economic factors and potential data availability issues.
Definitions of Terms
• Interest Rate Variability: Fluctuations in the rates offered by banks on deposit accounts.
• Deposit Growth: The increase in customer deposits over a specified period.
• Depositor Behavior: The decision-making processes influencing how customers manage their funds.
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