Examining the Determinants and the Impact of Interest Rate Spread on Profitability of Ghana Commercial Bank

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This study sought to investigate the determinants and the impact of interest rate spread of Ghana commercial bank over the period 2001 - 2007. it adopted the ex post approach of estimating interest rate spread and the model used to establish the relationship between the interest rate spread and it's determinants is based on the cost function and the profit maximization behavior of banks. The relationship between the bank profitability and its interest rate spread is established in this study using the accounting profit function of commercial banks. The findings of this work revealed that credit risk, and competition positively influenced the interest rate spread of the bank over the period of the study. However the operation cost was negatively related to the bank's interest rate spread implying that the bank could not pass on its cost of operation to its customers. The interest rate spread of the bank was also found to be negatively related to declining yield spread curve. The study also shows that borrowing and lending rates movement had a significant (explanatory power on the movement of the bank profitability.  
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Master of Business Administration, 2008