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An empirical analysis of bank specific factors affecting interest rate of Ugandan banking financial institutions

Sulait Tumwine (Department of Accounting, Makerere University Business School, Kampala, Uganda)
Samuel Sejjaaka (Abacus Business School, Kampala, Uganda)
Edward Bbaale (Makerere University, Kampala, Uganda)
Nixon Kamukama (Mbarara University of Science and Technology, Mbarara, Uganda)

World Journal of Entrepreneurship, Management and Sustainable Development

ISSN: 2042-5961

Article publication date: 10 May 2018

Issue publication date: 21 May 2018

542

Abstract

Purpose

The purpose of this paper is to investigate the effect of bank specific factors on interest rate in banking financial institutions (BFIs) of Uganda.

Design/methodology/approach

To analyze the effect, an OLS random effects regression estimate on a data set of 24 banks from 2008 to 2016 from Bank of Uganda Depository Corporation survey was carried out. Studied bank specific factors including liquidity, operational efficiency, credit risk, capitalization and lending ratio are considered.

Findings

The results indicate that liquidity, operational efficiency, capitalization and lending out ratio affect the interest rate while credit risk does not.

Research limitations/implications

The study has confirmed that bank specific factors influence interest rate and other factors such as industry-level and indirect macroeconomic indicators need to be explored. The differences in categories of banks on interest rate would be of importance. Finally, this study concentrated on banks in Uganda, future study would focus on the comparison of Ugandan banks with those of other countries in the East African Region.

Practical implications

Bank managers should invest in up-to-date technology to reduce operational costs and improve efficiency. Managers of bank should take interest on equity mobilization, because it constitutes a cheaper source of capital to finance asset used in operations and long-term needs of borrowers financing. Government should consider a legislation that provides incentives toward savings and reduction in tax for bank inputs.

Originality/value

This is the first study that investigates the effect of bank specific factors on interest rate in Uganda’s BFIs.

Keywords

Citation

Tumwine, S., Sejjaaka, S., Bbaale, E. and Kamukama, N. (2018), "An empirical analysis of bank specific factors affecting interest rate of Ugandan banking financial institutions", World Journal of Entrepreneurship, Management and Sustainable Development, Vol. 14 No. 2, pp. 153-167. https://doi.org/10.1108/WJEMSD-07-2017-0046

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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