The Impact of Changes in Monetary Policy Rates on the Lending and Financial Performance of Banks in Ghana

Abstract

This research examines the impact of Bank of Ghana policy rate on commercial bank lending and their financial performance. It assesses the degree of responsiveness of the Commercial Bank Lending to changes in the central bank policy rate and the overall impact of the policy rate on the financial performance variables of the banks. The study first observes the Central bank of Ghana’s policy rate movement over the past five (5) years. It focuses on licensed banks in Ghana as the population and obtained a sample size of 10 banks using a stratified sampling technique. Quantitative research approach was used to assess the relationship and multiple regression techniques were employed for the quantitative analyses. The results of the finding was significant positive relationship between monetary policy rate on banks’ lending implying that an increase in policy rate generally leads to an increase in commercial bank lending rate. However contrary to our expectation we also observed a positive significant impact of monetary policy rate on bank loans and advances, we therefore reject the hypothesis that increasing policy rate leads to a fall in commercial bank lending (In the case of Ghana) With respect to financial performance the results showed no significant impact on profitability and efficiency as the increase in the rates are generally passed on, however there is a significant adverse impact of an increase in policy rate on the liquidity position of the banks.