Determinants of Universal Bank Lending Rate in Ghana

Abstract

The factors that determine the level of universal bank lending rate are important to policy makers, investors, the banking industry and the public at large. The market for loans from universal banks is competitive and rates on these loans have tendency to reduce the deposit rate and increase the cost of borrowing. This study sought to investigate the determinants of lending rates in the universal banks in Ghana by answering the, what are the determinants of lending rates of Universal banks in Ghana. In order to quantify the effect of the various factors on lending rate during the period, we use panel estimation techniques. The study found that factors that affect the determinants of the lending rate in Ghana are Policy rate, Exchange rate, Treasury bill rate, GDP, Inflation, Bank size and HHI. The study recommends participation of all the stakeholders on reviews of existing policies on stability and sound practices in the economy. Banks should also explore internally and industry driven strategies that will militate against some of the bank specific factors associated with higher lending rate in Ghana.