Interest Rates and Corporate Performance in Nigeria

ECONOMIC ENVIRONMENT OF BUSINESS

TERM PAPER ON

INTEREST RATES AND CORPORATE PERFORMANCE IN NIGERIA

BY

OMOLOLA OGUNDIPE

MBA 15-026

SUBMITTED TO

DR BONGO ADI

TABLE OF CONTENT

1.0 INTRODUCTION

2.0 INTEREST RATE

  2.1 Factors Influencing Interest Rates in Nigeria

3.0 CORPORATE PERFORMANCE

  3.1 Determinants of corporate performance

4.0 RELATIONSHIP BETWEEN INTEREST RATE AND CORPORATE PERFORMANCE

5.0 TREND ANALYSIS OF INTEREST RATES NIGERIA, 2007-2016

6.0 INDUSTRY TREND ANALYSIS FOR CORPORATE PERFORMANCE, 2012-2016 

7.0 CONCLUSION

8.0 RECOMMENDATION

1.0 INTRODUCTION

There is huge impact of interest rate on the economy.  It is usually raised to lessen the amount of money supply in the economy which helps to reduce inflation. Companies’ expenses are increased due to interest rate and making the stock market a slightly less attractive place for investors to make investment. It also makes loans more expensive, which affects how purchasers and businesses dispose their income.

Business investments and innovation tend to be reduced by high interest rate. High lending rates of most banks make borrowing more expensive, companies may not borrow as much as they want due to high interest rate they would be paying on the loans, thereby reducing their cash flow which affects the productivity of the organization, and also causing reduction in profit. The Central bank of Nigeria (CBN) controls the Monetary Policy Rate (MPR) which is also regarded as interest rate. MPR is the interest rate used by CBN to lend to the commercial banks with latest value being 14 %. While lending rate is the bank rate used to meet the short and medium term funding or financing of most private sectors. Organizations are capable of increasing their profitability by decreasing their interest expenses. But interest expenses rise in a rising interest rate regime which makes profitability diminish.

2.0 INTEREST RATE

The term interest is described as the yield or return on equity or the alternative of deferring present consumption into the future (uchendu, 1993:35). Therefore interest rate is the quantity of interest paid per unit of time expressed as a percentage of the quantity borrowed.  Interest rates can be differentiated mainly in term/maturity. Many different interest rates will emerge when maturity and liquidity collectively with other factors are taken into consideration (Anyanwu, 1997). Interest rates could be discount rate, Treasury bill rate, lending rate and savings rate.