Abstract

Objectives: This paper investigates the key drivers of interest rate spreads in the Ghanaian banking sector, using data from 15 commercial banks. Methods: The study adopts a quantitative research approach based on secondary data. Annual financial reports from the selected banks and economic data from the Bank of Ghana and the Ghana Statistical Service (GSS) served as the primary and secondary sources for the analysis. Structural equation modelling (SEM) was employed to conduct inferential statistical analysis of the quantitative data. Results: The results indicate that operating costs have a positive and statistically significant effect on interest rate spreads. The findings also show that the prime rate exerts a significant influence on interest rate spreads. However, reserve requirements and industry-specific factors do not significantly affect the determination of interest rate spreads. Additionally, credit risk and liquidity risk were found to be statistically significant under both partial and full correlation analyses. Among the bank-specific variables, overhead costs and operating costs significantly influence interest rate spreads. Conclusions: The study concludes that banks should collaborate with relevant stakeholders to implement strategies aimed at reducing operating costs, which could ultimately contribute to lower lending rates.