The Impact of Interest Rates on the Performance of Financial Institutions: A Case Study of Barclays Bank Kampala Road Branch

Abstract

The study investigated the impact of interest rates on the performance of financial institutions, a case study of Barclays Bank Kampala Branch. The study was guided by three objectives which were: To determine the impact of interest rate on savings in Barclays Bank, to determine how interest rate impact on the investment rate in Barclays Bank, and lastly to determine the impact of savings on Investment in Barclays Bank. The methodology involved the use of ex-post facto research design. This is because, the researcher does not aim to control any of the variables under investigation and our pre-disposition is to observe occurrence over a period of time (1970-2008). Another justification for the research design is the desire of the researcher to use secondary data to test the hypothesis formulated. The findings revealed that when the interest rate is high, the level of savings will rise because depositors will profit, as he will have more returns on his deposits. In the same view, if the interest rate falls, the level of savings will drop, as people will not be motivated to save. On the contrary, if the level of interest rate rises, the level of investment falls because the cost of acquiring funds becomes expensive and when the level of interest drops, the level of investment rises as the cost of acquiring funds for investment purposes is reduced. Also it was observed that when savings increases the level of investment increases because more funds will be available in the hands of investors to fund capital projects in the economy. The study recommended that Barclays Bank should offer a wide range of loans , this is because it affects the demand from clients who may require loans for a wide range of reasons. The processes of savings and investment play central roles in the circular flow of income and in determining the level of income, therefore Barclays Bank should ensure that the rate of interest on loans and advances are such as to stimulate investment.