Analysis of commercial bank interest rates and charges in Uganda, a case of DFCU bank, Bugolobi branch
Kyakusse, Dennis Louis
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The study was set to provide an analysis into the interest rates of financial institutions particularly DFCU Bank, Bugolobi Branch. Its objectives were to establish the level and trend of the interest rates, to find out the factors responsible for the prevailing interest rates and to find out strategies that can be adopted to optimize the prevailing interest rates. In conducting this study, a descriptive and cross-sectional study design in which data was collected from a random sample of 44 employees using questionnaires was used. The data collected was processed in SPSS version 20.0 at descriptive analysis level. The study found that there were moderate levels of interest rates (Mean = 3.36, SD = 1.28) which mostly fluctuate more than optimal levels in DFCU bank, Bugolobi branch. The study also found inflationary tendencies within the economy significantly influence the rates of interest charged on loans extended to commercial bank customers (63.4%). The results also indicate competition among financial institutions (70.7%) and ensuring operational efficiency in the branch (43.9%) and the credit risk which has been too high is responsible for the increased interest rates in the branch on loanable amounts (51.2%). Lastly, the results also revealed that mobilizing cheap funds was the most suggested strategy by bank respondents to be adopted to optimize the prevailing interest rates at DFCU Bank, Bugolobi Branch (92.7%). The study according to the objectives concluded that the levels of interest rates in DFCU bank are not low enough hindering customers from borrowing the money hence denying useful investments. The study also concluded that the high interest rates charged were because of the need to ensure operational efficiency and the credit risk has been too high that has caused the increased interest rates in the branch on loanable amounts. The study recommended that the government needs to set fair interest rates so as to help in reducing high interest rates which is normally put on commercial bank customers. The study also recommended that the management of DFCU, Bank need to practice credit risk management to improve over role performance and secure a competitive advantage which in turn reduces losses thus charging low interest rates to customers.