Current Volume 9
Abstract
This study examines the impact of interest rate spread on the financial performance of commercial banks in Nigeria from 1986 to 2024. Motivated by persistent fluctuations in bank profitability and ongoing debates about the efficiency of financial intermediation, the research investigates the dynamic relationships between bank profit margin, interest rate spread, liquidity ratio, and inflation rate. The study employs an ex-post facto research design, utilizing secondary data sourced from the Central Bank of Nigeria’s Statistical Bulletins and published bank financial statements. The Autoregressive Distributed Lag (ARDL) bounds testing approach was adopted to analyze both short-run dynamics and long-run equilibrium relationships. The findings confirm a stable long-run cointegrating relationship among the variables. The long-run results reveal that interest rate spread has a strong positive and statistically significant effect on bank profitability, with a 1% increase leading to a 2.08% rise in profit margin. Similarly, the liquidity ratio exhibits a positive and significant impact, while inflation shows a modest yet significant positive relationship. The Error Correction Mechanism confirms a rapid short-run adjustment to equilibrium. The study concludes that while interest rate spread is the dominant driver of bank profitability, prudent liquidity management and effective adaptation to inflation are crucial complementary strategies. Consequently, the study recommends that policymakers at the Central Bank of Nigeria should design balanced interest rate policies that safeguard bank profitability without constraining credit access to the real economy. Bank managers are also advised to optimize their liquidity and asset-liability management frameworks to enhance sustainable financial performance.
Keywords
Interest Rate Spread, Bank Profitability, Financial Performance, ARDL, Commercial Banks, Nigeria
Citations
IRE Journals:
Igwemma, Andrew A., Ogu, Callistus, Agwu Kalu Sunday "Interest Rate Spread and Financial Performance of Commercial Banks in Nigeria" Iconic Research And Engineering Journals Volume 9 Issue 12 2026 Page 1016-1027 https://doi.org/10.64388/IREV9I12-1718828
IEEE:
Igwemma, Andrew A., Ogu, Callistus, Agwu Kalu Sunday
"Interest Rate Spread and Financial Performance of Commercial Banks in Nigeria" Iconic Research And Engineering Journals, 9(12) https://doi.org/10.64388/IREV9I12-1718828
About IRE Journals
IRE Journals is an open access online journals established with an aim to publish high quality of research work in various diciplines. We have more than 6 years in publications. Over 2500+ papers already published.
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